Rmb Exchange Rate Changes On Chinese Textile And Garment, Iron And Steel And Automotive Industries Studied

Since China joined WTO in 2001, the openness and external dependence of China's economy has been increasing, and the impacts of RMB's exchange rate changes on industries' developments have become more evident.From RMB's exchange reform in 2005, the exchange rate and the fluctuation of RMB has been on the rise. Due to the 2008's financial crisis, the world's major economies suffered heavy losses and downturns in the post-crisis era, resulting RMB suffered an unprecedented appreciation pressure.How China's macro economy, especially the foreign trade related sectors will be affected under such a pressure, has become an urgent concern.However, the existing research about the impacts of RMB exchange rate movements on different industries is not much.Therefore, in this paper I select textile and apparel industry, steel industry and auto industry as the representatives of China's foreign trade related sectors to study the impacts of exchange rate movements on China's industrial economy which has an increasingly important theoretical and practical significance.Based on the literature review, I describe the selection reason of the the three sample industries and analyze the impacts of RMB exchange rate movements on China's textile and apparel, steel and auto industries from both theoretical and empirical aspects. The impacts of exchange rate movements are discussed not only in a divided industry level but also in a comprehensive and dynamic profiles of them,and further comparison of the impacts among the sample industries is also provided in this paper.From the perspective of theory, RMB's appreciation will bring a big impact on China's export sectors.The textile and apparel industry and the automotive parts industry will lose part of their international price competitiveness.On the contrary, the steel industry and the automobile manufacturing industry will benefit from the decreasing import purchasing costs of raw materials and parts which will partially offset the adverse effects from RMB's appreciation.But at the same time, the automobile manufacturing industry will suffer a big hit from both the internal and external markets because of the high degree of import substitution.From the perspective of empirical analysis, I use the quarterly data sample from the year 1999 to the year 2009 and several econometric models and methods, including cointegration method, ECM model, VAR model, Granger causality test, impulse analysis and variance decomposition analysis, obtaining the conclusion that RMB appreciation does impose an opposite impact on the economic performances of the sample industries with the extent and timing of the impacts varying with different economic variables of different industries.Comparing with the steel industry and the automobile manufacturing industry, the textile and apparel industry and the automotive parts industry are more sensitive and more vulnerable to RMB exchange rate movements, and show a higher risk in the exchange rate exposure. The sensitivity of import and export trade to the exchange rate is greater than that of domestic economic variables. The long-term elasticity of most variables is greater than the short-term elasticity of them.The capital-intensive steel industry adjusts faster than other industries after the exchange rate shock.The conclusions of this paper are as follows:The impacts of exchange rate changes transmit to the domestic economy through import and export trade channel.China's textile and apparel industry, steel industry and auto industry are all affected in their exports, domestic production and employment, accompanied by the increasing imports, the decreasing product competitiveness, and the rising loss rates within the industry.These effects are more significant on the more labor-intensive and low-tech industries, such as the textile and apparel industry and the automotive parts industry. Therefore, we should concentrate on changing the industry growth pattern, developing technological competitive advantage, and improving the quality and the value-added of the exported products, and thus reduce the competitive disadvantage of China's labor-intensive industries in the context of RMB's appreciation.