Volatility Of Real Effective Exchange Rate Effect On Textile Industry

Along with the rapid development of China’s economy and thedeepening of reform and opening up, especially after China’s joining inthe WTO and implementation of the reform on exchange-rate mechanism,Chinese enterprises, in the process of internationalization, have beeninevitably facing more and more prominent exchange-rate risk. Sincereform of RMB’s exchange rate in2005，the appreciation of RMBcontinued to accelerate and the fluctuation of exchange rate has been onthe rise as well. What kind of influence these circumstances lay onChina’s textile industry, one of the most important sector in china’s exporttrading, has become an urgent concern. So the study which takes thetextile industry as representative will be meaningful both theoreticallyand practically to the research on how the currency appreciation affectsour labor-intensive and export-oriented industry. This paper mainly analyzes the impacts of RMB rate volatility onChina’s textile industry from both theoretical and empirical perspective.From the theoretical angle，the paper discusses how the appreciationaffect import and export, employment, economic performances of textileindustry. From the empirical angle, the paper uses the quarterly datasample from2003to2010to analyze the influence of the exchange rateon textile industry’s gross value of industrial output, employment andgross profit, etc. After the fully research, we come to the conclusion thatRMB’s appreciation does impose a negative impact on the economicperformances of textile industry. Finally, the paper presents the strategyand suggestion to textile industry on how to deal with RMB’sappreciation.