Abstract
With the announcement on 21 July 2005 that the RMB exchange rate regime would be reformed, great attention has been paid to the impact of the RMB's appreciation on China's trade. Since China is in transition from a pegged to a managed floating regime, no existing appropriate model and method can be utilized to investigate this question directly. In this paper, a scenario analysis technique is used to study this issue, coupled with the introduction of the substituted variables: Japanese yen and Euro exchange rate. Our results show that RMB appreciation would not bring severe effects on China's trade in 2005; however, a possible sustained reduction of export growth in 2006 should be given more attention. It is also necessary and urgent to press forward with the reform of RMB exchange rate regime, and put in place the related supporting policies to avoid sudden fluctuations such as the Japanese situation after the “Plaza Accord”.
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