The Influence Of Exchange Rate Of The Third-country On China's Bilateral Export Trade

Since the end of the 1970 s,China has implemented a policy of reform and opening up.With the deepening of reforms,the development of China's foreign trade has also been stepping forward within passing days,and the total volume of imports and exports has continuously increased.Its proportion in GDP has gradually increased from 0.074% to 36%.The rapid growth of the national economy will be inseparable from the development of China's trade.Since 2005,China started to implement interest rate marketization reforms.At present,RMB exchange rate seems to have gradually been adjusted to the right place.This is because the exchange rate of the RMB has been in a trend for several years.In the state of appreciation,the proportion of current account surplus in GDP has also decreased from 10.13% to 1.7% in the eleven years since 2007,which has greatly slowed China's external imbalances.Under such circumstances,people are paying more attention to the fluctuation level of the RMB exchange rate.The study of the impact of exchange rate fluctuations on trade volume concerns the selection of a country's exchange rate policy,and it is also the focus of economic research.The research on bilateral trade in academia is generally between two countries without taking the third-country into account.The influence of the third-country is possible to produce estimation bias when studying the relationship between trade and exchange rate fluctuations.This research angle can be traced back to Cushman(1986).In his article,he pointed out that the exchange rate of a third-country has a certain impact on bilateral trade.Bilateral trade is directly affected by the risk of bilateral exchange rate,but also is indirectly affected by third parties.This paper improves the mathematical model of Cushman(1986),and establishes a Seeming Unrelated Regression(SUR)model.The monthly data from July 2005 to October 2017 is selected to examine whether the exchange rate and the level of volatility of the third-country will affect China's bilateral trade with the United States,the European Union,and Japan,from a more diversified perspective.It is analyzed that how the exchange rate and the volatility of the third-country affect bilateral export trade.An empirical study based on this bilateral trade data shows that bilateral exchange rate fluctuations do affect China's bilateral trade negatively,and that the third-country's exchange rates and its volatility also affects too,accompanied by an increase in the volatility of exchange rates among the third-country.China's exports tothe United States,Japan,and Europe have also increased.The appreciation of the third-country's exchange rates will lead to a reduction in the value of exports.Conclusions and suggestions we get in the end are as follows.China's foreign trade will not decrease due to the appreciation of the RMB against the US dollar.Therefore,China's reform of the exchange rate mechanism should be stepped up gradually.At the same time,it is also necessary to note that after including the third-country in the analysis,China's trade will also be affected by the RMB's real exchange rate.Therefore,while China gradually relaxing exchange rate fluctuations,we must pay attention to reducing the one-way appreciation of the RMB in order to minimize negarive impacts.Meanwhile,this article also explains why the continued appreciation of the RMB exchange rate has not alleviated the US trade deficit.