The impact of RMB exchange rate change on China's Foreign Trade and Economy

- Jan 31, 2019 -

 

The impact of RMB exchange rate change on China's Foreign Trade and Economy

In the process of rapid economic development, the RMB exchange rate will be affected by internal and external factors, external factors, mainly from the pressure of other countries, including the United States, Japan and other countries. Internal factors, mainly from the internal effective exchange rate, purchasing power parity, balance of payments and other aspects.

The impact of RMB exchange rate change on China's Foreign Trade and Economy


(1) affecting the composition of export commodities and their market competitiveness

There is a great similarity between the changes in the real exchange rate of the RMB and the changes in the commodity structure. In the analysis of the impact of export commodities, it must be combined together according to the types of export commodities and the composition of their costs We should also analyze the inflation situation, so that we can be more comprehensive. After research, before the reform and opening up, China mainly exported some resources-related commodities, and the exchange rate of the RMB was relatively high, among which the export proportion of agricultural and sideline products, processed agricultural and sideline products, and industrial and mineral products was relatively large They reached 27.6% , 33.9% and 38.5% respectively. Although they have generated some benefits, they do not conform to the concept of sustainable development and need reasonable control. At the beginning of the reform and opening-up period (1978-1994) , China carried out a nominal downward adjustment of the RMB exchange rate, which was not coordinated with the development of the market economy and the price level. As a result, the domestic inflation rate was less than the depreciation of the RMB exchange rate Because China is rich in labor resources, it has formed a certain cost advantage, which is conducive to the promotion of the benefits of some export enterprises that produce and process products. In 1999, some labor-intensive products have become the main strength of export trade 56.8% . In the 21st century, the society has entered the era of knowledge economy. General Secretary Xi Jinping has also proposed supply-side reform, which is driven by technological development. The market advantage of some labor-intensive products has gradually declined There is also an urgent need to change the structure of export products, which are affected by the appreciation of the RMB and have reduced efficiency. It is necessary to pay attention to scientific and technological research and development and to replace labor-intensive and resource-based products through technology exports. In recent years, in particular, there has been an increasing boom in Renminbi appreciation, said Stephen, chief economist at Morgan Stanley. Rotch has identified the impact of the global inflation squeeze as an increase in Chinese exports, and some countries, including the United States and Japan, have urged the yuan to appreciate.


(2). Affecting the transformation and upgrading of Foreign Trade Industries

RMB exchange rate changes, will affect the cost of products and competitiveness, so it will make enterprises to transform and upgrade for development. On the cost side, the appreciation of the RMB exchange rate will increase the actual cost, reduce the advantage of the cost of human resources, lead to an increase in the cost of the products of the processing trade industry, reduce the actual income, and require technological upgrading Rather than a rudimentary, extensive process. Structurally, the trade of each country and region comes from a link in the global industrial chain, consisting mainly of product R & D-MANUFACTURING and assembly-logistics-marketing, in order to gain market initiative Must strengthen the participation degree to the link, strengthens to the industrial chain value chain high-end control. The appreciation of the RMB exchange rate can play a role in promoting it, weakening the low-end trade processing industry and strengthening the high-end technology industries. However, it reduces the import cost of intermediate products in trade, resulting in a decline in the competitiveness of domestic intermediate substitute products It restricts the extension of the processing trade industry in the domestic processing chain and forces the corresponding enterprises to look for new development vitality. In addition, the appreciation of the people has also promoted the overall quality improvement of China's labor resources costs, which is conducive to the development of some transnational corporations and high-end industries, and has enabled China to better participate in the high-end links of the country's trade industrial chain And conducive to industrial transformation, to technology, knowledge-based, intensive direction.


(3) affecting China's Foreign Trade Balance

The impact of RMB exchange rate appreciation on China's foreign trade balance is mainly reflected in the short-term and long-term. In the short run, the market transmission mechanism is affected by many factors, which can be divided into two categories. One is the factors that are not affected by the change of RMB exchange rate, such as the potential trade space of domestic export products and services, the price elasticity of demand of export products, the import trade policy of trading partner countries, etc. . The other category is more influenced by the fluctuation of RMB exchange rate, such as the share of factor of production related to production cost in the import and export trade between the two sides. Normally, after the appreciation of the RMB exchange rate, the production cost increases, the promotion of trade price will reduce the competitiveness, and to maintain the original price, will reduce the income. In the aspect of long-term impact, there are two main research viewpoints, which are neutral theory and non-neutral theory. Neutral theory means that the impact of exchange rate change on a country's trade in a long period can be recorded as "zero" . For the non-neutrality theory, it is believed that the exchange rate change can promote the export of a country, increase the volume of trade, and make it develop stably in a long time. The author believes that changes in the exchange rate have an impact on a country's trade situation, and even if the impact is not reflected at that time, it will continue to be latent The main idea is to adapt to the reality, seize the opportunity, and meet the challenge. This kind of influence can be manifested in the innovation of enterprise products, the formulation of development strategy, and the establishment of target market, etc. For example, improve the export industry system, effective cost control, intensive production, and so on.