Analysis On China's Export Demand Elasticity Under RMB Appreciation Environment

Since the reform and opening to the outside policy was adopted in 1978, China's economy has been developing rapidly with the fast development of China's foreign trade. With the expansion of the scale of China's foreign trade, the trade deficit of China's major trading partners (region) with China is also expanding. Some frequent trade partners began to set up trade barriers against China to protect its domestic market. Among them, some countries want to curb China's exports through RMB appreciation, thus to cut down their trade deficit. And since the RMB exchange rate mechanism reformed in July 2005, under the dual pressures at home and abroad, the RMB has appreciated by 22% already. RMB appreciation will surely reduce our Export? What are the key factors which affect our exports? How to maintain rapid and stable development of the solution through adjusting those factors?Based on those problems, this paper absorbed the results of previous research, proposed some corresponding solutions for the development of China's export trade by empirical research, and to some extent, provided strong evidence to some countries which saying that the RMB appreciation will ease the trade deficit with China.The passage used the existing statics from 1985 to 2008 and used OLS regression analysis, cointegration test, Granger causality test and other econometric methods to study the export demand elasticity of China. First, the paper used ADF test to make sure that whether those variables are stable. The paper is to find whether there is a long-term stable relationship between the various factors and China's export through co-integration test. This paper also used the Granger test to analyze whether there are causalities between various factors and China's export.The empirical research results show that foreign income elasticity of China's export demand was 2.00, the domestic income elasticity was 1.58, that's to say the world economic growth and China's export supply capacity have the greatest impact on China's exports, RMB exchange rate has positive effect on China's export, and it seems that this result is incompatible with the theory, but the results of cointegration test show that the RMB exchange rate has negative effect on China's export in the long run. Foreign direct investment and export tax rebates both have a positive incentive effect on China's export, but the elasticity coefficient is very small.Finally, according to the above results, this paper proposed six suggestions. We should put forward to further optimize the export structure, improve the RMB exchange rate mechanism, develop our productive forces, adjust the export tax rebate policy properly, and use foreign investment rationally.