Rmb Exchange Rate And China-asan Trade

In recent year, the problem of Renminbi (RMB) exchange rate is concerned by domestic and overseas and Europe Union (E.U.), United States of America (U.S.A.) and JAPAN paid much attention to the movement of RMB exchange rate. For a thing, since July 22nd in 2005, there is a rising trend of RMB exchange rate. For another, with the development of China-ASEAN Free Trade Area, the relationship between China and The Association of Southeast Asian Nation (ASEAN) has become increasingly close. In the first quarter of 2010, ASEAN exceeded Japan, becoming the third biggest trade partner of China. According to the theory of international economics, exchange rate is an important variable in adjusting international and economical relationship of the country and to Marshall-Lerner Condition, the export will acquire much increase, if currency of the country, compared to others, devalues. Then is it a contradiction between the rising RMB exchange rate and increasing export from China to ASEAN, or for another word, is the phenomenon for them accidental event? In addition, how much growth effect could be brought to two economic entities by China-ASEAN Free Trade Area? The purpose of this paper is to investigate problem above and to pursue rational explanation.In order to test whether it is a long-term and stable relationship between RMB exchange rate and China-ASEAN import and export trade, paper adopts modeling of time series and Johansen cointegration test in analyzing the relationship between RMB real effective exchange rate(REER), RMB nominal effective exchange rate(NEER) and China-ASEAN import and export trade. Results show that the cointegration of them exists and there is a long-term and stable relationship between RMB exchange rate and China-ASEAN import and export trade.In the long-term relationship of Chinese exports to ASEAN economies, real exchange rate appreciation of the positive effect on exports is larger than the nominal exchange rate; while in imports, the impact of real exchange rate on imports is much smaller than the nominal exchange rate. Using impulse response analysis, it shows that there is "singular J curve" effect in the impact of effective exchange rate of RMB on export of China to ASEAN economies:in the beginning, real exchange rate and nominal exchange rate appreciation, which give China's exports to ASEAN a negative influence, then the impact turns positive at last.However, the way which considers ASEAN as a whole and adopts effective exchange rate is not suitable and it doesn't give the direct relationship between exchange rate and China-ASEAN trade; for another, with the development of China-ASEAN Free Trade Area, borders, such as tariffs, are considered as important factors in China-ASEAN trade, except for exchange rate policy and it is not suitable to investigate the affect from borders (tariff) to import and export trade between China and ASEAN country.In order to gauge the impact form RMB exchange rate to China-ASEAN country trade and the role of tariffs, compare the influence of exchange rate and border, the paper use CES utility function proposed by the Anderson (1979) and the way by Miaojie Yu (2009) which add exchange rate into gravity model, then study the relationship between RMB exchange rate and China-ASEAN country trade when considering borders.According to panel cointegration test, a long-term and stable relationship exists between RMB RER and import and export trade of China-ASEAN country, while it is not between RMB NER and import and export trade. This result is consistent with the finding of Khim-Sen Liew, Kian-Ping Lim, Huzaimi Hussain when they studied case of Japan and holed that RER is the key in the relationship between Japan and ASEAN, but NER is not. According to calculable panel error correction model, paper find that error correction mechanism in export model and exports form China to ASEAN country is determinated by RMB competitiveness comparing to other ASEAN money, supply side and demand side and their equilibrium while tariffs is not so important. It also show that the increase in China-ASEAN country trade attribute to the impact of appreciating RMB exchange rate to China-EU, USA, Japan trade and intra-industry trade and the reason of achievement in economies of scale between China and ASEAN, but the impact of China-ASEAN Free Trade Area should not be exaggerated. In import model, the factor influencing China-ASEAN country trade is similar to export model while the difference is that China to ASEAN import is relatively stable and change in import rely on supply side of ASEAN country, while change in RER and gross domestic product have less impact on import of China-to-ASEAN country.