AJIBM  Vol.7 No.6 , June 2017
Impact of Renminbi Appreciation on China’s Trade Balance: From Empirical Evidence
Abstract: By estimating trade balance equation, export equation and import equation, this paper shows empirically that China’s trade surplus is not sensitive to the fluctuations in the real effective exchange rate, but the price elasticity has become large and significant in the period from 2005 onwards after the new exchange rate regime was instituted on 21 July, 2005. In the latter case, I found divergent results on ordinary trade and processing trade, i.e. the appreciation in Renminbi has found to reduce ordinary trade balance and increase processing trade balance. In addition, I found the appreciation has larger impact on processing trade (both the processing exports and the processing imports) than it has on ordinary trade.
Cite this paper: Guo, W. (2017) Impact of Renminbi Appreciation on China’s Trade Balance: From Empirical Evidence. American Journal of Industrial and Business Management, 7, 816-831. doi: 10.4236/ajibm.2017.76058.

[1]   Garcia-Herrero, A. and Tuuli, K. (2007) Can the Chinese Trade Surplus Be Reduced through Exchange Rate Policy? BOFIT Discussion Paper 2007(6).

[2]   Dees, S. (2001) The Real Exchange Rate and Types of Trade: Heterogeneity of Trade Behaviours in China. Paper Presented at the Workshop on China's Economy Organised by the CEPII in December 2001.

[3]   Benassy-Quere, A. and Lahreche-Revil, A. (2003) Trade Linkages and Exchange Rates in Asia: The Role of China. CEPII Working paper No. 2003-21.

[4]   Thorbecke, W. (2006) The Effect of Exchange Rate Changes on Trade in East Asia. RIETI Discussion Paper Series, 06-E-009.

[5]   Shu, C. and Yip, R. (2006) Impact of Exchange Rate Movements on the Chinese Economy, Hong Kong Monetary Authority, No. 3/06, July 2006.

[6]   Marquez, J. and Schindler, J.W. (2006) Exchange-Rate Effects on China's Trade: An Interim Report. Board of Governors of the Federal Reserve System. International Finance Discussion Papers No. 861.

[7]   Whalley, J. and Wang, L. (2011) The impacts of Renminbi Appreciation on Trade Flows and Reserve Accumulation in a Monetary Trade Model. Economic Modelling, 28, 614-621.

[8]   Chee-Wooi, H., Siong-Hook, L., Tze-Haw, C. (2015) The Impact of the Renminbi Real Exchange Rate on ASEAN Disaggregated Exports to China. Economic Modelling, 47, 253-259.

[9]   Cerra, V. and Saxena, S.C. (2003) How Responsive Is Chinese Export Supply to Market Signals? China Economic Review, 14, 350-370.

[10]   Mann, C. and Plück, K. (2005) The U.S. Trade Deficit: A Disaggregated Perspective. Institute for International Economics Working Paper WP 05-11, Institute for International Economics, Washington DC.

[11]   Eckaus, R.S. (2004) Should China Appreciate the Yuan. MIT Working Paper 04-16.

[12]   Cheung, Y.W., Chinn, M.D. and Fujii, E. (2007) The Overvaluation of Renminbi Undervaluation. Journal of International Money and Finance, 26, 762-785.

[13]   McKinnon, R.I. (2005) China’s New Exchange Rate Policy: Will China Follow Japan into a Liquidity Trap? Weekly Economist, 50, 1-13.

[14]   Zhang, Z.Y. and Sato, K. (2012) New Estimates of the Equilibrium Exchange Rate: The Case for the Chinese Renminbi. The World Economy (2012).

[15]   Gong, C. and Liu, Z.-Y. (2015) The Effects of the RMB's Appreciation on Trade Balance in US. Journal of the Korea Society of Computer and Information, 20, 135-142.