Impact On China's Agricultural Economy Of Rmb Appreciation

Agriculture is the foundation of national economy, its level affects not only subsistence level and quality of life, but also the healthy development of other industrial sectors. While it has long been a pillar industry of China's foreign trade and a great source of trade surplus.On July 21,2005, China carried on new managed floating exchange rate system, which was market-based, with reference to a basket of currencies. Recently, some foreign states consider RMB is undervalued and it is under the pressure of appreciation. RMB appreciation will inevitably affect agricultural trade, and thus all aspects of the agricultural economy directly or indirectly. Wheather it should rise in value? What impact it will have on China's agricultural economy if it appreciation? That's just the research question.This paper will combine theoretical and empirical methods together in analyzing the effect of RMB appreciation on agricultural economy. The key issues are China's international trade of agricultural products and farmers'income. As studing these issues, we will lead to some conclusions:Firstly, founding the characteristics and comparative advantage of agricultural structure will contribute to agricultural development in new stage. Secondly, understanding the transmission mechanism of the RMB exchange rate are helpful to stable products'price and increase farmers'income. Thirdly, when the exchange rate fluctuates, we can take effective measures to ensure the stability of the agricultural economy, and then ensure macroeconomic's stability and development.At the very beginning, this paper describes the current situation and characteristics of RMB exchange rate and China's agricultural economy. Both the short-term and long-term analysis indicate RMB was undervalued. On this basis, the paper discusses the impact of the RMB appreciation on all aspects of agricultural economy. The results showed that:in short run, RMB appreciation will increase the imports and reduce the exports of agricultural products, increase the imports of produce goods, reduce farmer' animal husbandry and fishery income, but impact on foreign investment is uncertain. On the one hand, the appreciation of RMB has stimulated the domestic demand for foreign capital and the utilization increased by. On the other hand, RMB appreciation has discouraged the supply of foreign capital, the amount of foreign capital use reduced. In long run, RMB appreciation created favorable conditions for our country to introduce advanced technology and equipment. Echnological innovation will promote agricultural production efficiency and optimize agricultural structure.Chapter 3 and Chapter 4 are keys of the full text. Chapter 3 analyzes RMB appreciation effects on agricultural imports and exports with empirical methods. Using Johansen method, this chapter tested cointegration of the amount of import (export), real effective exchange rate and real income in China (main trading partners) of the four kinds of agricultural products which are classified under HS. The results show that there exists the long-term stable equilibrium relationship between the variables of all types of agricultural products. Various types of agricultural products'Export exchange rate flexibility greater than imports exchange rate flexibility. The income elasticity of primary agricultural products less than processed ones. In the Jong run, the impact of RMB appreciation on China's total agricultural trade can not be determined.Chapter 4 first proposed the mechanisms and effects channels of RMB appreciation to farmers'animal husbandry and fishery income. This mechanism has two paths:first, RMB appreciation increase imports and decrease exports of agricultural products, resulting in an imbalance of supply and demand of domestic market, that cause the products'price reducing in domestic market, thus reducing farmers income from animal husbandry and fishery. Second, the RMB appreciation cause the domestic prices of agricultural means of production increasing and changing amount of foreign capital utilization, that changing agricultural cost and farmers income as well.In analyzing the exchange rate transmission mechanism, this chapter tests Johansen cointegration of real effective exchange rate index, agricultural exports, domestic agricultural export price index, foreign capital use, price index of agricultural means of production and per capita cash income of Chinese farmers in animal husbandry and fishery. The result as follows:it is long-term stable equilibrium between the variables. In the long run, agricultural export acts as greatest roles in affect farmers animal husbandry and fishery income, the actual utilization of foreign investment act as second. Yuan appreciation reduced the farmers income from animal husbandry and fishery, but only slightly lower revenue.These innovations are possible:1, In analyzing impact of RMB appreciation on trades of agricultural products, it consideres the types of agricultural products and the corresponding trading partner.2, Chapter 4 proposes the mechanisms and effects channels of RMB appreciation to farmers'income from animal husbandry and fishery. On which basis establishing a measurement model.