A Study On The Effect Of Variances Of RMB’s Real Effective Exchange Rate On The Exports Of China’s Manufacturing Industry

The more flexible RMB exchange rate formation mechanism reform was launched byPeople’s Bank of China in July,2005, where the RMB exchange rate was decided not onlyby single dollar, but the supply and demand of the market of a basket of currencies. Afterthat, the RMB exchange rate constantly hit a new record. As one of the most importantindicators of a country’s international economic activity, the exchange rate’s volatility hasa significant impact on the balance of payments and domestic economic activity, alsoincluding the import and export trade of a country or region. With the new record of theRMB exchange rate, the export trade of China’s manufacturing keeps growing fast, and inthe same time, it is more and more urgent for China’s manufacturing to industrial upgrade.Thus, two questions are coming out following that: what is its influence on China’smanufacturing including high-technology, medium-high-technology, medium-low-technology and low-technology? and is the influence is different from the level of thetechnology?The thesis builds an empirical model of ARDL-ECM(autoregressive distributed lagerror correction model) based on the data from January,1997to April,2011and makes ananalysis on the influence of RMB real effective exchange rate on the export of differenttechnical level of China’s manufacturing.The results show that the appreciation of RMBreal effective exchange rate plays a more important role on the export of themanufacturing than the volatility of RMB real effective exchange rate. Furthermore, theexchange rate has a greater impact on the lower-technology manufacturing more than thehigher-technology manufacturing. Above this, the policy recommendations is proposed,we should slow down the process of RMB appreciation to provide the medium-low-technology and low-technology manufacturing the buffer space.The thesis has a creativeness that the industrial upgrading of China’s manufacturing isfirstly linked with the volatility of RMB real effective exchange rate due to the moreflexible RMB exchange rate formation mechanism reform. The importance and necessityof the industrial upgrading of China’s manufacturing is emphasized from the point of viewof the exchange rate, and then the policy recommendations about how to move forwardthe RMB appreciation is proposed.