Studies On The Pass-through Of China-EU Bilateral Exchange Rate To The Price Of China’s Exports

Exchange rate as an important variable of adjusting trade flow, its change not only directly affects the prices of tradable goods, but also indirectly affects total bilateral volume of trade and net position. Therefore, adjusting exchange rate is often taken as an important way of balance international payment. Exchange rate adjustment, however, failed to resolve the imbalance between China and China’s largest trade partner European Union. Renminbi continuously appreciates against Euro while China’s trade surplus against European Union keeps expanding. Exchange rate has failed to play its expenditure switching significantly. Based on this contradiction, in this article we will further analyze how the change of China-EU bilateral exchange rate affects the prices of China’s exports, namely studying bilateral exchange rate pass-through of China-EUThis article elaborates the theory of exchange rate pass-through from macroscopic view and microscopic view, and then makes a descriptive analysis of bilateral real exchange rate and exports using the detailed datas. In order to reveal the bilateral real exchange rate pass-through of China-EU and the competitiveness of Chinese exports in European market, we adopt VAR model and panel data model respectively to analyze the effect of bilateral real exchange rate on the overall price and classified prices of Chinese exports. The empirical results show that exchange rate pass-through of China-EU is incomplete and all the coefficients are negative, which means the prices of exports will rise with the appreciation of Renmonbi. And the prices of classified exports rise to different extent, which is to say that the competitiveness of each export in European market is different. Among those industries, the competitiveness of technology-intensive machinery manufacturing industry (SITC7) is the strongest, while the competitiveness of primary products of low technology such as inedible raw materials (SITC2) and fuel (SITC6) is relatively low. It can be seen that advanced technology and constant innovation are important preconditions for exporting enterprises of our country to gain a foothold in European market. After comprehensive analysis, we think that the government should give the corresponding support on industry policy while the exporters should carry out constant innovation to enhance their competitiveness.