The Analysis Of The RMB Exchange Rate Pass-through Effect On The Export&Import Prices

According to Exchange Rate Pass-Through Theory, the extent to regulate acountry’s trade balance by fluctuations in exchange rate depends on the export&import prices’ pass-through effects. Since the exchange reform in July2005, the RMBagainst the U.S. dollar has appreciated by30%cumulatively, but China’s trade surplusdid not change significantly and the imbalance of international payments in Europe&United States did not improved. This phenomenon is similar with the Japanese Yen’sappreciation after Plaza Agreement signed in1985. However, China is not completelythe same as Japan. In this paper, we firstly did a systematic analysis of China’s exportand import trade structure in order to build an analytical framework which is suitablefor China. The results show that:(1) China’s export&import trade structure withtypical characteristics of the "processing trade";(2) foreign-invested enterprises andprivate enterprises have become China’s main trade body (nearly85percent of theprocessing trade was carried out by foreign-invested corporation);(3) and China tradegoods structure showing the unique characteristics.Based on these studies, this dissertation research the pass-through of nominaleffective exchange rate into China’s export&import prices. The empirical resultsshow that: The transfer effect of changes in RMB exchange rates on export&importprices is incomplete and time-lagged. There are significant differences in pass-throughbetween different categories of goods. Furthermore, we made an intensive study inERPT’s coefficient. Findings indicate that: The competitiveness of Chinese productshas great relevance with the balance of trade structure. The competitiveness of thetrade surplus class products (SITC6, SITC7and SITC8) was significantly greater thanthe trade deficit class products (SITC2and SITC3).The international competitivenessof Chinese industrial products is generally stronger than the primary products. Andprocessing trade commodities’ market competitiveness also presents polarizationdevelopment trend: capital and technology-intensive products (SITC7) is graduallycompetitive in international markets while traditional labor-intensive products’(SITC8)competitiveness presents a downward trend. Based on the empirical results, this paperconsiders the incremental exchange rate formation mechanism reform will help toreduce the negative impact of RMB appreciation on China’s domestic enterprises.Investment strategy of China’s foreign exchange reserves should be directly involved in the development and utilization of important strategic resources. In addition, China’sprocessing-trade structural adjustment should focus on the introduction of capital andtechnology to strengthen its competitiveness in international markets.