| On July 21st, 2005, The People's Bank of China declared that China moved into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. On the same day, the RMB exchange rate to U.S. dollar, adjusted from 8.2765 to 8.11, appreciating 2%. After the reform of its exchange rate system, RMB has begun its appreciation period. Until March and April, 2009, RMB exchange rate to US dollar has been fluctuating between 6.83 and 6.84 yuan, and its appreciation is significant in the past 3 years since 2005.Exchange rate is an important instrument to adjust the trade balance of one country, and also influences both the pattern of foreign trade and the operation of domestic economy significantly. Scholars of domestic academia have already made numbers of research about the effects of the fluctuation of RMB exchange rate on Chinese trade, though their results demonstrated different. From those researches we notice that it is very difficult to make all-round and accurate analysis of the impacts of the fluctuation of RMB exchange rate, for the reasons of the limitation of data used in their researches, the time lag of impact of exchange rate fluctuating on trade, and so on. This paper tries to establish a framework of theoretical model based on traditional theory and Melitz (2003) models to investigate the effects of the change of RMB exchange rate.In this article, through the analysis with theoretical models, we get following conclusions about the impact of the RMB appreciation on our country:(1)Generally, changing of exchange rate has direct or indirect effects on exporting industries and enterprises. As to our country, the appreciation of RMB reduces the number of enterprise able to export in the exporting industries, and their profit gained from export is also getting much less at the same time, but only the enterprises with higher productivity can survive. Of course, this is the general situation and conclusion,because the influence of change of exchange rate on industry is related to the demand elasticity of the product produced by this industry and the distribution of productivity rate of the firms in the industry. As to one country, we can get overall outcomes of the impacts of exchange rate fluctuating on trade after analyzing all exporting industries with this analytical path.(2)As RMB appreciation reduces the number of exporting enterprises in exporting industries and also their ability of obtaining profits from export, under the condition that technological upgrading is nonreversible, there will be more enterprises adopting advanced technology only able to serve domestic market, and give up their export done before the change of RMB exchange rate. The technology adopted by enterprise will be solidified, which would obstacle the upgrade of technology of industry in the long term.(3) As to polices, we can consider to counterbalance away the negative effect of RMB appreciation by applying other economic polices. But there is also a dilemma because of the diversity of policy target producing different results The economic policy with the target of ensuring employment will be an obstacle to the technological upgrade and to the conversion of industry in the long run. While the economic policy that take technological upgrade as the target will cause more unemployment in short period. |
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