The Impact Of RMB Exchange Rate On The Chinese Balance Of Payment

After China joining WTO in 2001, the degree of economic opening has been enlarged and the international trade has increased rapidly. China's foreign exchange reserves have drastically increased owing to the increase of surplus of international payment balance, which due to the "double favorable balance" between the current account and the capital-financial account. The appreciation Pressure of RMB became very high. A reform of RMB exchange rate mechanism was called by Chinese government in July, 2005 in order to release the high pressure. There is no any change on current status until now.Should RMB appreciate continuously? What impact will it have on China's international payment balance? Base on the foreign and domestic literature summarization, this paper will analyze the RMB exchange rate effects on China's international payment balance, focusing on balance of trade of china and capital flow. The estimation results suggest that lag influence exists between the actual appreciation of RMB and the china's trade surplus. The appreciation of RMB has influence on the inflow of both long-term capital and short-term capital. So the moderate and steady appreciation of RMB is necessary. In this way we can avoid seriously negative affections on economic development speed and economic structure of our country. Maintain a certain negative interest margin between China and USA under the anticipation of the RMB appreciation will benefit the release of pressure from inflow of arbitrage capital. Positive influence will be enlarged on Chinese economy by adopting a flexible monetary policy and carrying out an expansionary financial policy to stimulate consumption and reduce saving rate.Main contributions of this paper as follow.1. Systematical analyzed the Impact of RMB exchange rate on Chinese balance of payment ,which includes trade balance and capital flow. Research results in the past usually studied only one aspect.2. Multivariable influencing factors were used in empirical analysis on the impact of RMB exchange rate on Chinese trade balance and capital flow. Research in the past on this topic only studied the relationship between RMB exchange rate and capital flow or between RMB exchange rate and trade balance. 3. Empirical analyzed the impact of RMB exchange rate on the inflow of international short-term capital. On this ,the research in the past focused on theoretical analysis.