The Impact of RMB Revaluation on China’s Foreign Trade

YU+Hai-yan

【Abstract】Since China reformed the exchange rate regime on July 21， 2015， RMB exchange rate has been revalued by 21% so far. The remarkable appreciation of RMB exchange rate has affected Chinas foreign trade deeply in the past 10 years. This thesis aims at analyzing the impact of RMB revaluation on Chinese imports and exports from economic point of view， and tries to propose some suggestions and strategies to face the future revaluation and negative effects caused.

【Key words】RMB revaluation； Import and export； Foreign exchange； Impact

1 Introduction

In recent years， major currencies of the world have significantly been adjusted and US Dollar continued its depreciation era. As the trade relationship between China and the world economy gets closer， exchange rate fluctuation has exercised more crucial influence on Chinese foreign trade. From the dual exchange rate in 1981 to a single peg to the USD in 1994， from the free convertibility under current items to the present managed floating based on market supply and demand with reference to a basket of currencies， all the significant adjustments on the exchange rate regime are closely related to the status of imports and exports. Thus， an analysis of impact of RMB revaluation on Chinas foreign trade is of significance. It is hoped that such a study may somewhat contribute to Chinas foreign trade.

2 Advantages of RMB Revaluation on Foreign Trade

Firstly， seen from the export commodity structure， RMB fluctuation exerts more influence on the exports of primary products which have more dependency on exchange rate. Such export commodities will increase pressure on internal resources and environment in a long term. To manufactured products industries， RMB revaluation is good for the import of advanced technology and equipment， which will make the related internal enterprises to walk on a more competitive road with technology， and lead Chinese foreign trade to a sustainable development way.

Secondly， seen from the trade growth mode， price rise will enlarge profit space in some industries， which will help to change industrial management direction and mechanism， and enhance the international competitive power and anti-risk ability. For example， RMB revaluation has less negative effects on processing trade than general trade. That will help to push Chinese foreign trade mode to processing trade.

Lastly， seen from enterprise competition， some foreign trade enterprises with low technical contents and additional values， poor management and low efficiency will face hardships and even go bankrupt. But that just accords with the direction of Chinese industrial structure adjustments and release more economic growth potentials. Moreover， unemployed workers may transfer to other industries， exerting more pressure in the industrial structure optimization.

In a word， the increases of costs and profits led by RMB revaluation will change our foreign trade structure in a long term and endow various industries and enterprises with different growth rates.

3 Disadvantages of RMB Revaluation on Foreign Trade

In macro sense， RMB revaluation has directly influenced Chinas exports， and decreased the competitive power of Chinese commodities in international market. Seen from the international division of labor， manufacturing products dominate Chinas exports， most of which are primary products with high substitution and low competitive power. The main way to compete is low price. So the trade structure and strategy is easy to be attacked by exchange rate fluctuation. Seen from the division of production factors， China has labor cost advantages. Most of the export enterprises are labor intensive， and their products have low additional value. RMB revaluation will increase the production costs and labor costs. That means profits are reduced， which will influence exporters initiative， reduce exports and close some of the enterprises.

In micro sense， RMB revaluation has increased transaction risks of export enterprises， and damaged economic profits of some ones. In the real export transactions， many foreign importers choose to pay the total value to the seller within a certain days after receipt of goods. That means Chinese exporters pay RMB to purchase the raw materials to produce export commodities， but receive devalued foreign exchange， which has influenced exporters economic profits and even made losses. If exporters do not make good preparations for the future exchange risks， they may go bankruptcy because they cannot withstand the pressure of home currency depreciation. So the changes of RMB exchange rate mechanism should be taken into consideration for the whole foreign trade strategy.

In a word， Chinese exports will face the challenges brought by RMB revaluation in a long time.

4 Suggestions

4.1 Policy Suggestions to Chinese Government

Firstly， Chinese government should improve the credibility of the government， exercising skillful diplomacy. Secondly， With regard to the issue of the revaluation of the RMB， it is in the best interest of China to adopt a comprehensive approach by combining fiscal and monetary policies with exchange rate policy to cool down the rising currency. Thirdly， Chinese government should appropriately control and rationally use of Chinas foreign exchange reserves.

4.2 Thoughts on Chinese Foreign Trade System

In the past 10 years， China has been under the pressure to revaluate the RMB. Under this circumstance， we have taken appropriate measures to alleviate the adverse effects which have been imposed on Chinas import/export trade， including changing development strategy from export oriented to domestic demand， adjusting the trade structure of Chinas import/export commodities to facilitate industrial upgrading， reducing Chinas dependence on particular countries in foreign trade， and improving service system in foreign trade.

4.3 Provide Enterprises with the Hedging Trading Platform

In order to help foreign enterprises to overcome the negative impact caused by the adjustment of the RMB exchange rate， the financial sector has developed numerous innovative products and a number of hedging tools which are technically mature and urgently needed to improve banking services， so that it can become a “good assistant” of enterprises. As for domestic enterprises， they may find the following risk-avoiding tools particularly attractive： RMB forward exchange transaction， foreign currency futures， forward foreign exchange， foreign exchange option， swap transaction， export negotiation credit， forfeiting， structured deposits， etc.

【Reference】

[1]保羅·克魯格曼.匯率的不穩(wěn)定性[M].中國(guó)人民大學(xué)出版社，2000：48-56.

[2]Zhang Hongfang.“Esays on the Optimal Choice of Exchange Rate Regime”[D].Drexel University，2007.

[3]http：//www.safe.gov.cn[OL].

[責(zé)任編輯：湯靜]