Research On The Impact Of RMB Exchange Rate On China's Processing Trade

Since the RMB exchange rate reform in 2005,the RMB has entered the appreciation channel.At the same time,the proportion of processing trade import and export and the processing trade surplus are also declining.There are many mainstream opinions that the import of processing trade is mainly for export.From the perspective of import and export prices,the appreciation of RMB makes the decline in processing trade import costs offset by the decrease in export value.Changes in the effective RMB exchange rate will not significantly affect processing trading.However,actual data shows that the RMB exchange rate does have a significant impact on the import and export of processing trade.How does the RMB exchange rate affect processing trade? This article selects monthly data on related variables such as total processing trade import and export,processing trade surplus,and the real effective exchange rate of the renminbi from January 2000 to December 2018.The sequence data needs to undergo first-order difference stationary;second,the co-integration relationship test is performed on all variables,and then a VAR model with co-integration constraints,that is,a VEC model;The impact of changes in the real effective exchange rate on the total size of processing trade imports and exports and the processing trade surplus.The research results show that: in terms of processing trade scale,the appreciation of RMB exchange rate has different short-term and long-term effects on the scale of processing trade.In the short term,at the initial stage of RMB appreciation,due to the rigidity of adjustment of production contracts,the import and export scale of processing trade will increase.In the long run,the appreciation of the renminbi will increase China 's wage costs denominated in foreign currencies.Multinational companies can adjust the number of contracts and seek developing countries with lower processing costs for processing trade.The increase in the effective exchange rate of the renminbi will reduce the import and export scale of processing trade.In terms of processing trade surplus,the negative impact of RMB appreciation on China's processing trade surplus will be apparent in the long run.Because processing trade has the characteristics of "two ends outside",processing enterprises mainly earn processing fees,and the surplus in processing trade is roughly equal to the sum of wages denominated in foreign currencies.When China's wages denominated in RMBremain unchanged,the yuan appreciates and the sum of wages denominated in foreign currencies rise.In the long run,the appreciation of the renminbi will raise the cost of wages denominated in foreign currencies.If China's processing enterprises do not carry out technological innovation,they will lose the competitive advantage of cheap labor.Foreign companies will reduce cooperation with Chinese processing enterprises and seek Vietnam.Cheaper labor in Southeast Asian countries has reduced China's processing trade surplus.The basic conclusion of this paper is that since multinational companies usually measure the cost of labor costs denominated in foreign currencies,the appreciation of the renminbi will increase the wages denominated in foreign currencies in China,and the processing costs of multinational companies in China will increase,resulting in processing trade.Adverse effects and ultimately hinder the development of China's processing trade.