RMB Appreciation Research Articles

Exchange Rate Pass-through in China: A Cost-Push Input-Output Price Model

Relying on a cost-push input-output model for China, we estimate the exchange rate pass-through to both domestic prices and export prices at the industry level. Our empirical results indicate that the decline of the RMB price in the processing exports sector in response to an RMB appreciation is larger than that in the non-processing exports sector, which, in turn, is larger than the decline of the consumer price indexes. Our cross-sector analysis also suggests that exchange rate changes have the lowest impact on prices in capital- and technology-insensitive industries.

Analysis of the Impact of RMB Exchange Rate Fluctuations on Guangdong’s Outward Foreign Direct Investment

For a long time, China’s balance of payment has been in a “double surplus” situation which may easily cause imbalance in the country’s economy, so we must keep expanding outward foreign direct investment to ease domestic inflations. Guangdong has accelerated its outward foreign direct investment significantly nowadays. Through descriptive statistics and measurement research, it is found that Guangdong’s outward foreign direct investment has been growing year after year, and the modes are diversified, however, the overall scale is still small. The investment regions are not balanced, and the investment mainly focuses on low-end industries. The relations between outward foreign direct investment and the RMB exchange rate show positive correlation. Based on the findings, it is suggested that we should seize RMB appreciation opportunity to expand the scale of our investment, and optimize the investment structures and investment regions.

A global value chain (GVC) model for determining changes in global output caused by currency appreciation

ABSTRACTThis study used a global value chain model to determine the effect of currency appreciation and its resultant impact on different sectors, value chains, and world output. Based on the global value chain (GVC) perspective, we derived a formula for the computation of world output adjustment by sectors caused by currency appreciation. Utilizing the WIOD database, we applied the formula to calculate the changes to the value-added by each sector level, given a specified currency appreciation. Our empirical findings revealed that currency appreciation creates an illusion of higher GDP growth when denominated in a foreign currency. However, when denominated in domestic currency, appreciation of the currency put an adverse impact on its own GDP growth. The impact of currency appreciation varies from country to country and their respective sectors. Taking the world as a whole, US dollar exchange rate appreciation drives up global real GDP, while RMB appreciation leaves a negative impact on the global GDP. Furthermore, it is assumed that if a country’s aggregate demand exceeds its aggregate output, its currency appreciation tends to expand global GDP. Similarly, if a country produces more than what it consumes, its currency appreciation leads to decline in the global GDP.

Taylor Rule, International Capital Flows and the Dynamic Determinant of RMB Exchange Rate

The report of the Nineteenth National Congress of the CPC and the 2018 Central Economic Work Conference clearly pointed out that maintaining the basic stability of RMB exchange rate at a reasonable and balanced level”. Therefore, while enhancing exchange rate flexibility, maintaining the orderly fluctuation of RMB exchange rate at the level of agreed equilibrium will be an important issue to the monetary authorities.This paper takes the monetary policy of open Taylor Rule as the framework, and endogenously implants international capital flows to examine the dynamic determinant mechanism of RMB exchange rate. In particular, we choose the sample period from July 2005 to October 2018, and adopt the TVP-SV-BVAR model to take an empirical analysis from different perspectives and periods.The following results are obtained: (1) Both the inflow of international capital and the expansion of interest margin will boost the appreciation of RMB exchange rate in the short and long term, and the impact will increase significantly after the exchange rate reform” in 2015. (2) The rise of inflation will also cause the appreciation of RMB exchange rate in the short and long term. However, this impact is relatively small in most periods. (3) Output increasing will lead to RMB devaluation in the short term, but it will promote RMB appreciation in the long term. Compared with other variables, the output gap has the greatest impact on the exchange rate, and is relatively stable in most sample periods. (4) The impact of exchange rate expectations on RMB spot exchange rate will be positive in the short term, but negative in the long term due to foreign exchange intervention.The results of this paper have important implications for preventing the abnormal flow of international capital and stabilizing the fluctuation of RMB exchange rate. In particular, the decision-making authorities should implement integrated supervision of international capital flows to avoid risks or even crises arising from large-scale capital flows. Taylor Rule, which includes international capital flows, plays an important role in promoting the marketization of the exchange rate and the interest rate.This paper expands the existing research from two aspects: Firstly, it endogenously implants international capital flows into the open Taylor Rule model and analyzes the dynamic determinant mechanism of RMB exchange rate from the theoretical level. Secondly, we utilize the TVP-SV-BVAR model to empirically analyze the nonlinear effect of Taylor Rule including international capital flows on RMB exchange rate from different points and periods. In addition, with the increasing complexity of domestic and foreign economic environment, the causes of regional heterogeneity involved in the study can be further identified.

The Driving Forces of Chinese Stock Returns

We investigate whether macroeconomics factors price Chinese stock returns. We find that GDP growth and momentum factor demand negative pricing premiums after controlling for market, value and size factors. The negative pricing of GDP growth is robust after controlling for momentum factor, the negative effects of stocks’ size and volatility and the cheap pricing of their fundamentals. The negative pricing of momentum factor is robust after competing with stocks’ characteristics, GDP growth and RMB appreciation. We also find that a stock’s size, value, earnings yield, cash-flow yield, return reversal and idiosyncratic volatility predict stock returns after controlling for these factors.

Re-exploration of the Roots of RMB Appreciation: Back to Marxism

The long-term appreciation of RMB is rooted in the improvement of China’s relative labor productivity. On the basis of using and comparing the Marxist exchange rate theory deduced from Marxism Labor Value Theory and the Balassa-Samuelson model, we try to explore the inherent logic of exchange rate changes affected by relative labor productivity, which is different from the traditional research perspective. According to the classification and the related data of trade and non-trade sectors, the dynamic panel model is used to study the effects that relative labor productivity of China and its major trading partners, and relative productivity of any two sectors within each economy entity have exerted on RMB exchange rate. There are several conclusions: First, the improvement of labor productivity is the fundamental motive force for a country’s currency appreciation. The improvement in labor productivity, whether it is the trade sector or the non-trade sector, can steadily increase the exchange rate of a country, hence justifying the long-term appreciation of RMB and its magnitude. Second, due to the factors like the development stage, the economic structure, the exchange rate system, the Balassa-Samuelson effect is not significant in China and in the sample of selected economies, but we find that the Marxist exchange rate theory can better explain the appreciation of the RMB, therefore using such theory. Third, basic variables of one country, which include the degree of openness and the growth rate of GDP per capita, will also have different degrees of influence on exchange rate changes. Therefore, high-quality economic development is the key to enhancing currency value, attracting international capital and improving international competitiveness. In this process, we should speed up the transformation of the way of economic development and promote full employment. We should also ensure the simultaneous adjustment of wages and labor productivity while promoting the free flow of labor and capital. It is also necessary to deepen the market-oriented reform of the education and medical departments and reduce market monopolies in railway, real estate, postal and other industries so as to promote reasonable adjustment and effective formation of exchange rates. Besides, in order to increase openness and strengthen communication and integration between China and the world, we should apply effective communication mechanisms to remove various trade barriers and reduce trade disputes.

Autoregressive moving average model based relationship identification between exchange rate and export trade

This paper has analyzed the influence of RMB exchange rate change on our import and export trade for the relationship between our RMB exchange rate and foreign trade. Mechanism, model and empirical research methods of RMB exchange rate change for the competitive advantages of international trade have been set up based on time series autoregressive-moving average model. Empirical analysis results have shown that there is certain necessary connection between RMB appreciation and persistent surplus of China’s balance of trade. The persistent surplus of China’s balance of trade is presented as the persistent deficit of balance of trade in some countries. RMB appreciation can reduce surplus of balance of trade in China and then improve the persistent deficit of balance of trade in some countries.

Research on Dynamic Relationship between Exchange Rate and Stock Price—Based on GARCH-in-Mean Model

The reform of the exchange rate system has brought epoch-making changes to China’s capital market. Based on the monthly exchange rate of the US dollar against RMB exchange rate and the Shanghai Composite Index (SHCI) from June 2005 to August 2017, this paper empirically tests the dynamic relationship between China’s exchange rate and stock price using the GARCH-in-Mean model. The empirical results show that China’s stock market doesn’t have a high level of openness to foreign investment; there is a two-way influence mechanism between China’s stock price and exchange rate market, and the appreciation of RMB will bring the stock market down; from the perspective of market fluctuations, the uncertainty of the exchange rate will not have an effect on the trend of the stock market, and the risk transmission mechanism between the two markets is not significant.

The Influence of RMB Real Exchange Rate on the Technical Structure of Sino-US Export Trade Products

Based on the classification of HS (Harmonized Commodity Description and Coding System), and according to the method of Lall (2000) [1], Sino-US trade products are divided into five categories, namely primary products, resource-intensive products, low technology products, medium technical products and high-tech products. Based on the data from the first quarter of 2005 to the fourth quarter of 2017, the influence of bilateral real exchange rate on the structure of Sino-US export trade was studied by using VAR model in this paper. The empirical results show that there is a strong granger causality between Sino-US bilateral real exchange rate and Sino-US export trade product structure, the former being the latter’s granger reason; in the short term, the appreciation (devaluation) of the real exchange rate between China and the US is conducive (inconducive) to an improvement in the trade structure, which has long been detrimental (beneficial) to the improvement of the trade structure. In general, the appreciation of RMB is unfavorable to the improvement of the technical structure of Sino-US export trade. Variance decomposition shows that Sino-US bilateral real exchange rate has a great contribution to the technical structure of Sino-US export trade.

Study on the Transformation and Upgrading of China’s Processing Trade

Processing trade is an important part of Chinese economy and the main content of foreign trade, which has become important driver of Chinese foreign trade export growth and trade ways. Since Chinese reform and opening up policy, not only has processing trade promoted the sustained growth in foreign trade, but also played a positive role in increasing the national income, solving the employment, introduction of foreign investment enterprises develop national aspects. However, unbalanced development between regions and increasing RMB appreciation pressure has resulted in more trade friction between China and western countries. This article puts forward some countermeasures to promote transformation and upgrading of processing trade, based on the analysis of China's processing trade present situation and existing problems.

Can the RMB appreciation effect Ningbo import?

This paper combines the import trade situation of Ningbo under Renminbi appreciation and analyzes the impact of Renminbi appreciation on import of Ningbo. The Renminbi exchange rate to Ningbo import trade have certain effect, namely the appreciation of the Renminbi, imports increased to a certain extent, but some period of change don’t increase, and even appeared down. The appreciation of the Renminbi and the influence of Ningbo import structure relations change is various. The appreciation of the Renminbi to Ningbo import is opportunities and challenges, Then it proposes the policy of the import trade of Ningbo on the problem of RMB appreciation

How appreciation of RMB impacts on Chinese textile exports?

A continued appreciation of the Renminbi against the US dollar after the 2005 reform affected much on China’s international trade which mainly settled through the US dollar. The textiles export as one of the major source of China’s surplus and as a labor-intensive industry, the impact should be greater. This paper based on the analysis of appreciation of China and the states of textiles and apparels export, explores the impact and extent on the export of textiles export by the appreciation of the Renminbi and makes some suggestions

The China’s Exchange Rate Policy to Export Competition

Purpose - The purpose of this paper was to analyze the Chinese government's announcement of the RMB's appreciation on July 1, 2010, and its aim was to ascertain whether the appreciation has affected Chinese export prices by empirically measuring the degree of the exchange rate pass-tough on those prices. Research design, data, and methodology - Using 73 HS trade categories with cross-industry and time-series data, the panel estimation of a fixed-effects model has been applied to measure the degree and stability of any exchange rate pass-through effects. The estimation results show that the export prices of most trade categories were affected by the exchange rate changes. The pass-through effect was generally small, at about -0.485, and statistically significant in most export prices. Results - The empirical results indicate that China would lose its advantage and competitiveness in export if the RMB were appreciated continuously and rapidly because its export goods would no longer operate under strong monopolistic competition. Conclusions - The implications for China's exchange rate policy suggest that it would be better for the RMB to appreciate slowly and gradually rather than radically. It is clear that it would be allow the capital free flow in Chinese overall economic interest to reduce the continuous appreciation pressure on the currency and pave the way for improvements in export distribution competitiveness.

Investigating the Effect of Exchange Rate Changes on China’s Electronic Products Exporting to European Union

Recently electronic products exporting is one large portion in Chinese export field and with the phenomenon of emerging rising domestic companies, it is attracted much attention. While, many scholars put pressure on RMB to appreciate, for RMB appreciation could rebalance World economy even China’s trade. However, empirical evidence on effects of RMB exchange rate change would have negative effect on electronic products export which is one kind of processed export. In electronic products exporting, much value-add in final goods is importing from South Korea Japan and other East Asian supply chain countries. Therefore, exchange rate movement in these countries is rather important to investigate.

Is RMB appreciation a nightmare for the Chinese firms? An analysis on firm profitability and exchange rate

Using the matched sample from the Annual Survey of Industrial Firms (ASIF) and Chinese customs data during 2000–2006, this paper investigates firms' responses, including export activity and profitability, to the RMB exchange rate movement. It is found that although RMB appreciation decreases firm exports, it improves firm profitability. We address several possible channels to explain this counter-intuitive finding, including productivity enhancement, import costs reduction and export structure upgrading. We find that the import costs reduction and export structure upgrading are reasons that RMB appreciation leads to higher firm profitability, but there is no evidence to support the productivity channel. Furthermore, export structure upgrading is primarily based on improving technology in new products rather than changing the export structure of continued products.

English

As the progress of capital account liberalization in China, the volume and volatility of international fund flows has increased significantly since 2000. Therefore, it is of vital importance to investigate their influence on domestic financial market. Based on a novel database, EPFR Global, we get the monthly fund flows in China from January 2005 to June 2013. Vector autoregression (VAR) models are employed to investigate the dynamic relationships between real exchange rate and international fund flows.The following conclusions can be drawn:  (i) large amount of international fund investments tend to result in RMB appreciation; (ii) the appreciation of real effective exchange rate leads to the decrease of fund flows in the first month and attracts more fund investments afterwards; (iii) the interaction between equity flows and exchange rate is more significant than bond flows. Key words: International fund flows, exchange rates, vector autoregression (VAR) model, equity flows, bond flows.

Research on Financing of Small and Medium Sized Enterprises in China Based on P2P Net Loan Platform

Small and medium-sized enterprises as an important part of China's economic development environment, already accounted for more than 99% of the proportion of Chinese enterprises accounted for. It not only made innovations in China's social production, promoted the economic prosperity, but also eased the pressure of urban employment on the basis of increasing exports. However, small and medium-sized enterprises still show weak trend in the development of market financing. On the one hand, the small and medium-sized enterprises are facing the pressure from the aspects of production, such as the RMB appreciation, rising labor costs, increase the cost of raw materials and financing costs increase, are factors that restrict loans through traditional banks and other financial institutions to small and medium sized enterprises; on the other hand, under the new situation of investment information the two sides of the small and medium-sized enterprise financing, the asymmetry of financial and non-financial information, lack of transparency and credit assessment difficult, are also important reasons restricting SMEs to bank loans. Moreover, small and medium-sized enterprises in the loan or in the process of financing, although the loan amount is small, but the loan frequency is high, and the financing period is relatively short, and the traditional financial institutions investment funds longer approval time has obvious difference, leading to small and medium-sized enterprises is difficult to adapt to the mode of financing and loan. But with the entry Internet plus era, the rapid development of computer technology, network technology, information and communication technology, making all kinds of Internet related technology, is gradually integrated into the financial sector, while the P2P (Peer to Peer point) net loan mode, is an important breakthrough of the traditional network technology into the financial sector. This not only makes the traditional lending mode change, but also makes the modern financial industry division of labor and specialization, is gradually replaced by the Internet and related technologies. It makes the meaning of it more obvious. Based on this, this paper uses the literature research and game analysis, the problems of the SME financing P2P net loan platform based on making research, and summarizes the measures should be taken: P2P net loan platform, small and medium-sized enterprises, investors, regulators, and credit evaluation institutions, jointly solve the financing difficulties of small and medium-sized enterprises Chinese the problem.

An Empirical Analysis of the Impact of RMB Exchange Rate Fluctuation on Textile and Clothing Export of Guangdong

The main purpose of this paper is to analyze if RMB appreciation is the reason for the decline of Guangdong textile and garment exports and how to make textile and garment industry of Guangdong province break through the bottleneck of development, so as to achieve a qualitative leap in the context of the RMB exchange rate fluctuations and rising production costs. Five parts are included, the first part is introduction, which elaborates the research significance and literature review; the second part is about data and research methods; the third part is an empirical analysis of the impact of RMB exchange rate fluctuation on textile and clothing export of Guangdong; the fourth part is the conclusion analysis, while the last part are policy suggestion, which includes three aspects, government industry and enterprise themselves. In theory, the appreciation of the exchange rate will reduce the export price advantage to reduce exports. However, in this paper, the VAR and VEC models were constructed by using the monthly data of Guangdong textile and clothing export (LNEX), RMB real exchange rate (LNER) and purchasing price index (LNPPI) in 2007-2014, finding that Although LNEX has a co-integration relationship with LNER in the long run, LNER is not the Granger Cause of LNEX, while LNPPI passes the test of causality; Impulse response curves show that LNER has a negative impact on LNEX in the short term, while there is no shock effect for a long time; Variance decomposition analysis shows that contribution of LNER to LNEX was 0, both in the long term and short term, while the long-term contribution of LNPPI to LNEX is about 8%.

The Impact on RMB Internationalization Process: Exchange Rate Expectation and Foreign Trade

This paper examines the impact of exchange rate expectation and foreign trade on the process of RMB internationalization based on an SVAR model. Considering the data limitation, this paper we present the progress of RMB internationalization separated by Hodrick-Prescott filter from Jul 2009 to Aug 2016. This study observes that the RMB appreciation expected as well as the reasonably increasing foreign trade may promote RMB internationalization; the impact of exchange rate expectation volatility plays a leading role. Therefore our empirical results have important implications for policymakers in reasonably controlling the scale of foreign trade and guide formation of exchange rate mechanism.

A Study of RMB Exchange Rate Fluctuation Influence on China’s Tea Export Value

It is an empirical analysis of whether RMB real effective exchange rate (REER) can influence China’s tea export value and how, using least square method and error correction model to establish long-term and short-term equilibrium relationships among variables on the basis of unit root test, autocorrelation test and co-integration test. The empirical results show that RMB appreciation can increase China’s tea export value in the short term, but decrease in the long term; the average price rise of China’s tea export can increase the tea export either in the long term or short; US consumer price index (CPI) rise can increase China’s tea export in the long term, but decrease in the short term; China’s manufacturing purchasing managers index (PMI) for China economic climate can also accelerate China’s tea export. But all the influences are not significant