Influence Of RMB Exchange Rate Fluctuations On China’s Economic Growth

Since China’s reform and opening up, China has achieved rapid economic development, In 2010, China overtook Japan and become the world’s second-largest economy, China surpassed the United States in 2013, as the world’s goods trading powers. China and world’s economic relationships are more closer, exchange rate is connected to the Chinese economy and world economy, since 2005 exchange rate system reform in china, the currency has been maintaining a state of continuous appreciation against the dollar, until June 30,2014, the RMB has appreciated 34.52% against the dollar, and the daily trading band against the dollar has a tendency to expand. As the appreciation of the RMB, the economic effect of the exchange rate is more urgent. How the RMB exchange rate changes will impact on China’s economy? How the RMB exchange rate changes will effect China’s import and export trade and foreign direct investment?First of all,we define the concept of economic growth and exchange rate in this paper, then we analysis of the transmission mechanism of RMB real effective exchange rate on the impact of china’s import trade,export trade and foreign direct investment from theoretical analysis.Next, we respectively analysis of the current situation of China’s macro economy, including gross domestic product, import and export trade and foreign direct investment, study RMB real effective exchange rate volatility on China’s gross domestic product, import trade,export trade and foreign direct investment from the intuitive graphical, we use the first quarter of 1994 to second quarter of 2014 data respectively empirical study on the relationship between exchange rate and gross domestic product, import and export trade, foreign direct investment. In the research of the relationship between RMB real effective exchange rate changes and gross domestic product, we use the method of cointegration test, granger causality test, the study found that:the RMB real effective exchange rate appreciation of 1%, China’s economic growth rate will drop 0.059%, RMB real effective exchange rate is the granger cause of China’s gross domestic product. Then, we study the effect of exchange rate affect economic growth mechanism:import trade and export trade, foreign direct investment. We establish the value of export trade, the RMB real effective exchange rate and foreign output long-term cointegration relationship between the three variables, the results show that the REER has appreciated 1%, the total export would be reduced by 1.3587%. Also, we establish the value of export trade, the RMB real effective exchange rate and foreign output long-term cointegration relationship between the three variables, the results show that the REER has appreciated 1%, the total imports would be reduced by 1.5264%.The RMB real effective exchange rate appreciation had reverse influence on China’s import and export trade, through the impulse response analysis,we can learn that exchange rate fluctuations will have long-term adverse effect on import and export trade. The research between exchange rate and foreign direct investment has shown that there is no stable equilibrium relationship between the RMB real effective exchange rate and foreign direct investment for a long time, in the short term, the RMB real effective exchange rate of foreign direct investment have influence. Finally put forward some policy suggestions such as avoiding the RMB exchange rate changes volatility in the short time.