The Impact Of RMB’s Real Exchange Rate On Sino-EU Trade

Since the middle of the1990s, foreign trade has been playing a remarkable role in our national economy. Among the trading partners, European Union has a considerable trading volume with China. Sino-EU trade, which has superseded Sino-US and Sino-Jap trade, is growing very rapidly. Now, EU has become the largest international mercantile partner of China.Exchange rate is ofen a key factor affecting bilateral trade, our nation has went through a long way of exchange reform since PRC was founded. The reform in July2005fomally bagan to lead the exchange rate of RMB to the road of marketization. In recent years, the fluctuation of RMB’s exchange rate has become more volatile due to various reasons. The bilateral exchange rate to US dollars, Euro, British Pounds as well as some other major currencies around the world has seen significant appreciation in last several years.The effect of exchange rate on trade balance has long been a controversial issue discussed by a lot of heads, for there are many pertinent theoretical models and impirical studies. This article is based on international trade between China and EU countries, and focuses on the two large ones in EU:Germany and United Kindom as examples to analyze the factors in Sino-EU commerce, especially the impact of real exchange rate.The disertation could be divided into several main parts:Introduction; Review of theory and principles; Discription of current situation; Empirical research; Conclusions and political advises.The first part is brief introduction of general economic theories about relationship between exchange rate and trade balance. Then, the article enimerates representative and definite empirical treatises both domestic and abroad, so we could make comments and conclusions on the existing literature.The history of development of Sino-EU trade and the exchange rate of some dominent countries in EU and RMB is reviewed next. After we grasp the basic realistic backgrounds, popular models in existing litarature are put into use, with the help of annual data of trade balance, real exchange rate and real income and also econnometric method of co-integrarion test, the research makes estimate and explanation of the coefficients in Sino-UK trade equation and Sino-Germany equation. Later, we analyze what the result implies in economic view, and discover that Sino-UK trade and Sino-Germany trade are both consistent with M-L condition but affected by exchange rate to different extent. Back with the error-correction model, we get it down that short-term relationship between real exchange rate and trade balance was not obvious.We also look into whether J-curve effect exists by means of impulse-response function.Further more, equations for trade commodities which are divided into two types are given, we try to reveal te impact of exchange rate on commodity structure with Johansen co-integration test, since labor-intensive products are more vulnerable to real exchange rate fluctuation.In the last chapter, we summerize the conclusion and speculate the reason why Sino-UK trade and Sino-Germany trade are different in terms of influntial factors, and the reason why exchange rate works in different ways on different typs of commodities traded between China and EU nations. At last, simple political suggestions are given.