The Study On The Impact Of China’s Steel Industry By The Change Of RMB Exchange Rate

Exchange rate as an important variable which links States trade plays a decisive role in people’s lives and economy in the contemporary world. The economic development and openness of China has been increasing, RMB exchange rate has been widespread concerned. Since the exchange reform in 2005,the flexibility of RMB exchange rate has been gradually increasing and entered the appreciation stage. After the 2008’s global financial crisis, RMB suffered more appreciation pressure. How the foreign trade sectors of our country will be affected has become significant concern. Therefore, in this paper I select steel industry as the representative to study how exchange rate movement affects all aspects of it.Based on the literature review, I introduced current development situation of steel industry in detail. And then, I chose the import and export trade and domestic demand as main parts and analyze the impact of RMB exchange rate movements on steel industry from both theoretical and empirical aspects.From the perspective of theory, China’s steel export products are mostly low value-added products, RMB’s appreciation will make export costs increased, reduce the international competitiveness and the corporate profits. And from the import side, our imported products are mostly high value-added products, these products with the characteristics of a rigid demand have Higher prices, so RMB appreciation will not necessarily stimulate domestic demand and Led to a substantial increase in imports. In addition, appreciation has brought a positive effect to the import of raw materials. In a word, the impact of the appreciation has pros and cons, and qualitative description can not make accurate estimates, so I use the empirical models to verify.From the perspective of empirical analysis, I select the quarterly data sample from the year 1999 to the year 2010 and two empirical models:ECM model and VAR model, obtaining the conclusion that RMB’s appreciation have negative impact on exports and domestic demand, but the two models differ on the import inspection. ECM model finds that the quantity effects of imports is less than value effects, appreciation leads to a decline in imports. But VAR model finds that the impact of exchange rate on imports is complex, appreciation of the RMB has negative impact on imports in the early, and then it has positive impact after a period of time. I also get the conclusion that the long-term elasticity of exchange rate is greater than the short-term elasticity, and the sensitivity of domestic demand to the exchange rate is less than import and export trade.In a word, RMB exchange rate movements has a certain influence on China’s steel industry, it transmits to the domestic economy through the import and export trade channel and the impact will last a long time. The steel industry faces significant challenges this years in front of RMB’s appreciation, so our government should use flexible macro-control means to control the progress of RMB’s appreciation. And the steel enterprises should change the industry growth pattern, intensify industrial upgrading and adjust the product structure according to market needs. Finally, environmental protection efforts should also be strengthened, we also should make persist on energy saving and eliminate backward production capacity.