The Effects Of RMB Exchange Rate Appreciation On China’s Foreign Trade And Suggestions

Since the Reform and Opening-up, China’s foreign trade mechanism has been deepened and the import and export trade continues to grow. By2011, China’s imports and exports for the first time exceeded$3trillion, the trade size of$3.642trillion. The dependence on foreign trade of china rises from12.5percent in1980to67percent in2006, reaching the highest level in history, which is far exceeding the world average. Foreign trade has been the strong power for promoting China’s economic growth. At the same time, with the exchange rate as the main factor affecting a country’s import and export trade, China continues to strengthen and deepen the reform of exchange rate regime. From the beginning of1981, the exchange rate regime in China has experienced four reforms in four phases. On July21,2005, China began to implement a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Since the exchange rate reform, the RMB exchange rate has entered a period of gradual appreciation. Especially after the outbreak of the global financial crisis in2008, Europe, the United States and other developed countries fell into the recession cycle, In order to transfer to the domestic economic crisis, the United States increased the pressure on appreciation of the RMB exchange rate, attributing the Sino-US trade imbalance problem to the undervalued RMB currency.On March27,2012, the U.S. dollar against the yuan central parity rate of6.2858, has cumulatively appreciated by over30%than of the exchange rate reform, which seriously impedes the development of China’s export trade. Therefore, as china is trying to reform the economic structure now, researching the impact of exchange rate on China’s foreign trade has great practical significance.This paper analyzes the relationship between China’s RMB exchange rate and China’s foreign trade from both aspects of China’s foreign trade scale and foreign trade structure, with the use of theoretical and empirical, qualitative and quantitative methods, and through a comparative study of yen’s appreciation. First of all, there is an introduantion about the classical theories of exchange rates and foreign trade, reviewing of the latest progress of the current domestic and foreign research. Secondly,the paper qualitatively analyzes the impact of the RMB exchange rate on the scale of China’s foreign trade, followed by the cointegration test and quantitative analysis of the VAR model, which shows there is negative short-term and long-term impact of the RMB exchange rate on the scale of China’s foreign trade.Chapter Ⅳ uses the same qualitative and quantitative analysis to study theimpact of RMB’s appreciation could optimize the foreign trade structure at the long-term, but the short-term effect is not obvious. In the fifth chapter, it draws on international experience of the yen’s appreciation, and compares RMB’s appreciation with the yen’s.Finally, based on conclusion and combined with the actual situation in China, the paper providing a viable suggestions about China’s exchange rate policy and foreign trade policy.