What Will Be The Impact Of RMB Appreciation On China'S Foreign Trade?

As of December 28, 2007, the central parity of the RMB against the US dollar has risen to 1 yuan to 7.3046 yuan, more than 6% over the beginning of the year, and has appreciated by 10% since July 2005.

The impact of RMB appreciation on China's foreign trade is a question which has been widely concerned and closely followed in recent years.

The impact of exchange rate movements on the balance of payments is the price of another country's currency represented by one country's currency. It is the most important comprehensive price index for a country to carry out international economic activities, and performs the function of price conversion in international finance and international trade.

If the exchange rate of a country appreciates, the export price will increase relatively and the import price will be relatively lower, which will lead to the decrease of export volume and the increase of import volume. This will help to relieve the pressure of foreign trade surplus. If a country's exchange rate depreciates, the export price will be relatively reduced, and the import price will be relatively improved, so that the export volume will rise and the import volume will decrease.

Scholars generally use the elastic analysis method to analyze the influence of a country's currency depreciation on the balance of payments.

Among them, Marshall Lerner condition is the core of elastic analysis.

It assumes that supply is completely elastic, and the effect of depreciation depends on the elasticity of demand.

Only when the demand elasticity of imports and the absolute value of the demand elasticity of export commodities is greater than 1, can the devaluation improve the balance of payments situation, and on the other hand, the balance of payments will deteriorate.

However, the J curve effect holds that the effect of currency devaluation on the balance of payments has a time lag effect. After the depreciation, the price of foreign currencies of a country's exports will decline, but the demand for foreign exports will not increase immediately, and the number of export commodities will not increase rapidly. At the same time, the quantity of imported goods will not decrease immediately due to the depreciation of import prices.

Therefore, the devaluation will only take some time to expand exports and curb imports.

Economists argue that the length of time lag after devaluation is quite large, ranging from six months to five years, which is usually considered one year.

The analysis of the effect of currency appreciation can also be based on this analogy.

The influence needs to be further developed. Theoretically speaking, the appreciation of the RMB to the US dollar can play a "prize in and out out" effect on China's foreign trade, that is, the appreciation of the renminbi makes the export price of the US dollar rising relative to the price of the US dollar, and the competitiveness of the export price weakened, thus restraining the export. The price of imported goods is reduced from foreign currency to RMB, and the relative purchasing power of the RMB is increased, which can stimulate the increase of imports to a certain extent.

Correspondingly, the growth rate of China's foreign trade surplus will drop.

From the perspective of the development of foreign trade, China's foreign trade has begun to show a trend of slower export growth and faster import growth since the July 2005 exchange rate reform.

However, due to the J curve effect, the elasticity of import and export products and the unique trade mode in China, the impact of exchange rate appreciation on China's foreign trade has not yet been fully realized.

From the point of view of exports, although the export growth rate has slowed down, it is still growing at a rate of over 25%. To a certain extent, it shows that the effect of the "bonus entry and exit" effect of RMB appreciation has not been fully realized.

The effect of exchange rate appreciation on exports is affected by the elasticity of export demand.

China's export products are mainly labor-intensive products such as textiles, clothing and footwear, as well as products with high capital and technical content, such as machinery and electricity.

Textile and other products have low technology content, and because of fierce competition in other developing countries, demand elasticity is greater. Appreciation of the exchange rate has a greater impact on the export of these products (the proportion of these products is close to 20%).

The export of mechanical and electrical products is mainly affected by the international industrial pfer and the increasing production and processing capacity of our country. The products are relatively competitive in the international market, and the demand elasticity is relatively small. The impact of export appreciation is relatively small (the proportion of such products exports is as high as 50%).

Therefore, the total export volume of our country is relatively small.

From the perspective of export, more than 50% of China's export products are realized through processing trade.

Although the appreciation of the RMB makes the international price of the export products rise, however, the processing trade is mostly produced after the import of raw materials and machinery and equipment in our country and then re exported. The appreciation of the renminbi has reduced the price of the local currency of imported raw materials and so on, resulting in the lowering of the production cost of processing trade.

After the appreciation of RMB, the cost of processing trade export products still has the possibility of decline, that is, the international competitiveness of export products will not necessarily decrease with the appreciation of the renminbi, which means that China's exports still grow at a relatively fast rate.

From the point of view of imports, although the growth rate of China's imports has been accelerating, the promotion effect of exchange rate appreciation on imports still needs to be further developed.

The effect of exchange rate appreciation on import increase is affected by the elasticity of import demand.

The higher the demand elasticity is, the more the import price will be caused by the decrease in import price. And for the commodities with small demand elasticity, the decline in import prices will not lead to a significant increase in imports.

In fact, China's import products are mainly energy (oil), raw materials (iron ore, steel), grain, processing trade parts and high-tech equipment. The demand elasticity of these trade products is relatively small, coupled with the sharp rise in energy and raw material prices further offset the relative decline in the prices of imported products brought about by the appreciation of the renminbi. Therefore, the relative decline in the prices of China's imported goods after the appreciation of the exchange rate has not caused a significant increase in imports, and has not fully played a role in promoting imports.

Under the influence of these factors, China's foreign trade surplus growth rate has slowed down, from January 2007 to November, the surplus growth rate was 52%, less than the growth rate of 74% in 2006.

However, the contradiction between the trade surplus and the trade surplus has not been alleviated effectively. In 2007, the surplus in 2006 reached US $238 billion 120 million, far exceeding the 177 billion 480 million US $177 billion 480 million in 2006.

Nevertheless, in the medium to long term, the appreciation of the renminbi will have a positive effect on China's trade structure adjustment.

At present, China's labor-intensive products with traditional export advantages, including textiles, clothing and footwear, are very sensitive to exchange rate changes. The continued appreciation of the renminbi has seriously squeezed the profit margins of these industries, forcing companies to turn to new products, improve technology and cultivate their own brands, so as to find new sources of profits.

For electromechanical and high-tech products with relatively high technology intensity, such as machinery and pport equipment, chemical and communication products, China has already formed a larger competitive advantage. The relative rise in export prices caused by exchange rate appreciation is relatively easy to be offset by the import cost reduction, new product development and technological progress, so there will still be room for development.

In addition, for foreign investment enterprises with important import and export carriers, although the RMB appreciation makes foreign investment cost increase, the impact of technology intensive foreign-funded enterprises is far less than that of labor-intensive enterprises, which is conducive to encouraging foreign investment to participate in the process of international industrial restructuring to a greater extent, to promote its technology, low consumption and high efficiency, to develop more competitive products, and pay more attention to domestic market, so as to reduce our economic dependence on foreign trade.

Therefore, in the medium to long term, the appreciation of RMB is conducive to promoting the upgrading of China's industrial structure and easing the contradiction between the trade surplus, which is conducive to a more stable and sustainable development of our economy.

The analysis of the foreign trade situation in 2008 shows that although the appreciation of the RMB exchange rate has a certain effect on restraining exports, promoting imports and slowing down the growth of trade surplus, the current impact is not as obvious as expected. In the medium to long term, the appreciation of RMB has a positive impact on the structural adjustment of China's trade products.

Of course, this requires a combination of various conditions.

In order to continue to give full play to the price leverage of the exchange rate in the international market, adjust the export rebate rate, expand domestic demand, and expand consumption in particular, a series of policy adjustments and cooperation will take place. China's foreign trade will show the following trend in 2008: the total volume of foreign trade will continue to grow. China's total foreign trade will continue to grow rapidly under the combined demand of international demand and the continuous strengthening of China's product competitiveness.

According to the Ministry of Commerce's 2007 autumn China external trade situation report, the growth rate of China's foreign trade slowed slightly in 2008, with an expected growth of 15%, and the total import and export volume is expected to exceed US $2 trillion and 400 billion.

The scale of trade surplus will continue to expand, but the growth rate has dropped somewhat. As China's export base is far greater than the import base, and the root cause of the surplus is our country's processing and assembling status in the international industrial chain, the exuberant demand of the international market and the increasing competitiveness of China's export products. Our export scale is larger than that of the import scale, and the pattern of trade surplus is difficult to change in the short term. The trade surplus will continue to exist for a long time in the future.

However, the growth rate of surplus may show a downward trend.

With the continued appreciation of the renminbi, its role in restraining exports and expanding imports will be further apparent.

In addition, China's import price increase will be higher than the export price increase.

From the point of view of the structure of import and export products, most of the commodities exported by China do not have the right to speak internationally, and the space for price increases is limited. While imports from the international market are mainly energy, raw materials and other bulk commodities, such as crude oil, iron ore, agricultural products and so on, these commodities are greatly affected by the rise in international prices. Meanwhile, China's demand for such commodities is relatively small. The rise in international market prices will not have a great impact on the import of such products, which will in turn represent a fall in the growth of China's trade surplus.

Under the combined effect of a series of policies and measures such as the adjustment of export tax rebate rate, the state's continued support for the export of electromechanical and high-tech products, and the expansion of energy and resources and import of key technology and equipment, the trend of China's trade products will continue to be optimized. The trend of excessive growth of exports of products with high energy consumption, high pollution and resources will be further suppressed; the export growth rate of labor intensive products such as textiles, clothing and footwear will slow down; if labor-intensive enterprises want to remain competitive, they will have to increase their technological content and increase their added value; the export of electromechanical products and high-tech products will continue to maintain a relatively fast growth momentum; imports of resource products and key technology equipment will continue to grow rapidly, and the role of imports in promoting the national economy will further develop. The structure of trade products will be continuously optimized in the appreciation of RMB.

Comrade Xiaoping pointed out that the visit of foreign ministers marked the beginning of "semi normalization" of relations between the two countries.

There are two implications: one is to explain the importance of the visit of foreign ministers; the two is to emphasize the realization of the visit of foreign ministers, which means that the Sudanese side must take substantive steps to eliminate the "three major obstacles" and create a precondition for the normalization of relations between the two countries.