What Is The Impact Of RMB Appreciation On The Trade Surplus?

What changes has taken place in China's foreign trade after a substantial appreciation of the renminbi?

First of all, look at the export side.

From the view of SITC classification criteria, China's export structure is developing towards optimization.

Since 2000, the export growth of manufactured goods has been faster than that of primary products. For this reason, the proportion of manufactured goods exports increased from 90% in 2000 to 95%.

From the small industry classification (HS guidelines), the top four industries of China's total export value in 2007 were mechanical and electrical (hereinafter referred to as the sixteen categories of HS classification, the same below), textiles (eleven categories), base metals (fifteen categories) and vehicles and other pport equipment industries (seventeen categories), which accounted for 43.4%, 13.6%, 9.5% and 4.5% of total exports in 2007.

It is easy to see that the export growth rate of the base metals industry is characterized by ups and downs, while the export growth rate of the other three industries has a slow downward trend.

This phenomenon is also consistent with our intuition, because: first, after a continuous and rapid growth, the export base of the three industries is relatively large; second, after all, the RMB has appreciated 13% against the US dollar to the end of 2007.

In 2007, the textile industry with the lowest growth rate increased by 20%.

This growth rate is quite impressive, which means that even if the growth rate has dropped, the export growth rate of China in 2008 is expected to remain at around 20%.

Then, is there a possibility that the export growth rate of major industries will decline rapidly?

We look for answers from the profitability of the industry.

According to normal expectations, the RMB appreciation rate in 2008 will be 7%-10%. How much will this appreciation affect the profits of the industry? The research results show that if the existing cost structure and cost control level remain unchanged, the export profits of the four major industries in 2008 will be offset by the appreciation of the RMB, and the export of the four major industries will face greater cost pressures.

We believe that if the RMB appreciated by 7%-10% in 2008, the erosion of the appreciation rate to export profit margins would be substantial, and the possibility of export growth decline would be greater.

This judgment is based on the following assumptions: first, the current economic growth has reached the peak of cyclical growth; industrial growth does not enjoy cyclical dividends; second, the export of products is based on cost advantages rather than technological advantages and market advantages; third, the RMB has increased the value of the main trade settlement currencies, not just the US dollar; fourth, China's export enterprises and foreign enterprises are facing the same international market, and international demand is at a stable level.

Look at the import side.

The structure of China's imports has also been optimized.

According to the SITC classification criteria, the export growth of primary products has been faster than manufactured products in most of the years since 2000, resulting in a decline in the proportion of manufactured goods imports from 79% to 75%.

The change of export structure and import structure shows that China's rapid industrialization process has been manifested in the international division of labor system.

According to authoritative judgement, China is still in the middle and late stage of the industrialization process. We expect this trend to continue.

In terms of specific industries (HS classification criteria), the top four industries of China's import volume in 2007 were machinery, electrical, mineral products, base metals and optical instruments. They accounted for 40%, 16.9%, 8.1% and 7.4% of total imports respectively, accounting for 72.4% of total imports.

What is interesting is that the export of machinery and electrical industry and base metal industry is also among the best. Optical instrument industry is also the sixth largest export industry in 2007, which is obviously the result of intra industry division of labor under the background of economic globalization.

We expect that although the import growth of the first two industries is slow, the import growth rate of the optical instrument industry is quite large. With the deepening of the economic globalization and the appreciation of the RMB, the import growth of the three industries is expected to continue at least in the medium and short term.

The import of mineral products industry is determined by the resource endowment and industrialization process of our country, and the import of the industry will continue to grow fast.

Therefore, under the background of economic globalization and China's industrialization, with the appreciation of RMB, imports can at least maintain their relatively fast growth rate.

The analysis of the product structure of foreign trade shows that the export growth rate is likely to fall, and the growth rate of imports will remain small. Therefore, we expect that the scissors gap of the recent growth rate of imports and exports is expected to continue.

In the main industries of import and export, we have observed that the export growth of textile industry has slowed down slowly. The textile industry is a labor-intensive and low value-added industry. The appreciation of the RMB has already had a substantial negative impact on its exports.

But in other industries, we still can not see the significant impact of RMB appreciation.

We believe that there are two main reasons: first, false trade, that is, the phenomenon of high reported exports and low reported imports. In the import and export of self processing equipment, we estimate that exports will be 6% higher and imports lower than 10%.

The rate of increase in imports and exports has increased by 16%, which is astonishing.

Second, the renminbi has only appreciated substantially against the US dollar. The attention to the US dollar has led us to ignore the whole picture of RMB appreciation, because the appreciation rate of RMB against the euro and yen is not large.

This makes it necessary for us to analyze the structure of the currencies of imports and exports and examine the impact of the appreciation of the renminbi on the import and export of major currencies.

We select the United States, Japan, the European Union and Hongkong as the object of trade regional structure analysis.

The reasons for choosing these economies are: close ties with China's economy, large trade volume, and issuers of major international currencies.

In 2007, these economies were the top five trading partners in China.

The scissors gap between imports and exports only appeared in 1-2 months of 2008. There is more reason for inferring the medium and long term trend based on such short term data.

Moreover, there are also temporary factors such as Spring Festival and snow disaster. The sustainability of this trend is more worthy of deliberation.

Since the renminbi has different appreciation rates for different currencies, how about the growth of China's trade with different currency Issuers (regions)?

Answering this question, we have a more solid foundation for forecasting the import, export and trade surplus in 2008.

With the continued appreciation of the RMB against the US dollar and Hong Kong dollar, China exports the US script src=>