Research On The Inlfuences Of Changes In The Real Effective’exchange Rates Of RMB On Chinas Trade Balance In Services

Trade in services is an important part of a country’s open economy. After1950s, theservice economy began to emerge, and service trade as the main content whichcontributed to the rapid rise of the service sector occupies an increasingly important rolein a country’s trade activities. Since China’s participation in the WTO in2001, trade inservices has presented a very rapid developing momentum with a growing scale. In2013,China has become the third largest country in the field of trade in services worldwide. Inspite of the strong performance by China’s service trade, the imbalance of trade inservices is also prominent. In1982, China’s international trade in services only has a$600million of surplus. Then the surplus of service trade started declining and developedinto the status of trade deficit. China’s service trade deficit in2012reached$89.7billion.Among many factors that affect a country’s international trade, the exchange rates asone of the most sensitive main factors, whose level and changes constitute the bulk ofinternational trade risks. Changes of the exchange rates directly affect the cost of acountry’s exports and the trade balance. In the area of research, most literature that isconcerned with the impact of the changes of RMB exchange rates on the internationaltrade has focused on the impacts of exchange rate on trade in goods. There aren’t manystudies on the relationship between the RMB exchange rate and trade in services. Thispaper uses the data of real effective exchange rates of the RMB and China’s trade balancein services from1995to2012and establishes the model for China’s trade balance inservice which is based on incompletely replacement model. The relationship between thereal effective exchange rates of RMB and China’s trade in services got the empiricallyproved by the method of weighted least squares. Conclusions show that in the long-term,the real exchange rates of RMB have a negative impact on China’s deficit of its trade inservices trade: when there is an increase of the real effective exchange rates of RMB(RMB got appreciated under indirect quotation), China’s deficit of its service trade willdecrease.This paper is divided into four main parts: the first part introduces the basicknowledge and the method of how to calculate the RMB real exchange rates with thefocus on a few great classical theories and theories on the relationship between exchange rates and international trade. The second chapter describes an overview of China’s tradein services, and illustrates the development status and characteristics of China’s trade inservices from two perspectives (industry size and industry structure). Then it focused onseveral major issues currently presented by China’s service trade. The third chapter is thepart of empirical analysis. The method of weighted least squares is used to analyze therelationship between China’s deficit in trade services and the real effective exchangerates of RMB. The fourth chapter gives the conclusions of the empirical study andsuggestions on how to ensure the healthy and overall development of China’s trade inservices.