China's Trade Balance And The RMB Exchage Rate

On July 21, 2005, China began to implement the floating exchange rate system, under management, based on market supply and demand, referring to a basket of currencies, then RMB self-appreciated by 2%. More than three years from then, RMB has been increasing appreciation and continuously reaching new heights, so far, near 20% appreciation of the RMB.Since 1994, China's foreign trade maintained a stable trade surplus, but since 2004 the trade surplus has seen a rapidly growing. By 2008 China's trade surplus reached 295.46 billion U.S. dollars.According to the traditional balance of trade theory, the RMB exchange rate continues to rise, which will reduce China's trade surplus. But the fact is that China's trade surplus continues to widen. This raises the suspicion to the applicability of traditional theory in China. This paper analyses the relationship between China's trade balance and the RMB exchange rate in each period. And then it analyses the structure and the reasons of the trade surplus for the period after China's entry to the market economy. Finally it uses elastic analysis to show the relationship between China's trade balance and the RMB exchange rate after China's entry to the market economy. Selecting each year the average annual exchange rate from the 1993-2007, including RMB against the U.S. dollar, Japanese yen, euro, pound sterling, , as well as the import and export volume, e.g. China to the United States, Japan, Europe (except UK) , United Kingdom each year. By calculating the different years, different regions of China to the Marshall-Lerner Condition, we explored the RMB exchange rate movements on the inipact of China's trade balance, which is the focus of the full text.The results show that: the Marshall-Lerner Condition Theory is entirely suited ever since China entering the market economy (1993) so far. The RMB exchange rate against a rise in foreign currency will lead to China's holding of the currency of the country or region to reduce the trade balance, RMB exchange rate against a foreign currency will lead to under China's holding of the currency of the country or region to increase trade balance.Finally, on the basis of the above, this paper suggests that in order to achieve adjustment of the balance of trade in different parts of the policy recommendations, we can adjust the RMB exchange rate to different foreign currency...