1、The impact of RMB appreciation As the comprehensive strength of the national economy grows, the Chinese currency, the Renminbi (RMB) began to appreciate. Effects of the RMBs appreciation since July have been felt both domestically and abroad, and will become even more significant with time. China sh
2、ould embrace the new opportunities that appreciation has opened-up and allow more room for the national economy to grow in the process of globalization. People need to be aware that the appreciation of the RMB may have some less desirable effects on economic growth in the short term. Currently, Chin
3、as export market still relies heavily on cheap labor to compete in the international market. As its added value is low, the appreciation of the RMB will affect Chinas export and consequently the overall growth rate of the national economy. However, there are also many positive aspects to the appreci
4、ation of the RMB. In the long run, RMB appreciation will generate more development opportunities. People will feel richer, it will improve Chinas status and influence in the world economy and it will change the commodity structure and the flow of investment. It will also have a significant influence
5、 on the structure of domestic production resources. First of all, it will accelerate industrial upgrading. In a market economy, the fluctuation of the foreign exchange rate involves the international balance of incomes and expenses and is an important price indicator. The appreciation of the RMB mea
6、ns that the price of various domestic resources, especially land and labor, will go up in relative terms and this will speed up necessary adjustments to the commodity mix and domestic industry. RMB appreciation will gradually change the value of the international and domestic markets. Domestic enter
7、prises will rely more on sales to the domestic market so that national economic growth is less dependent on export demand and a more reasonable industrial structure will form. Secondly, it will promote technical innovation. In many countries, technical innovation relies primarily on a market mechani
8、sm which makes good use of price as a lever. Chinas production process is enormously costly in terms of resources and energy, and labor is too cheap. The appreciation of the RMB will cause an increase in the domestic prices of such things as land and labor as well stimulate the demand for innovation
9、. Products for export must rely on technological innovation to be more competitive internationally. In the domestic market, enterprises are also forced to compete through technological innovation. Simply speaking, the appreciation of the RMB will cause the formation of a market environment that is c
10、onducive to speeding up technological innovation. Thirdly, the appreciation of the RMB will benefit the people. On the one hand, it will make imported products relatively cheaper. It will also be cheaper for Chinese to travel abroad. This will increase consumption. On the other hand, it will push up
11、 the market price of domestic financial assets, changing the financial market structure. If other conditions dont change, Chinese people will feel richer as the value of their money grows and further stimulates domestic demand. Of greater strategic significance is the fact that the appreciation of t
12、he RMB will make the price Chinese labor price higher. RMB appreciation reflects the success of Chinese economic development after reform and opening up. It is also an important turning point in Chinas social and economic situation. The downsides to RMB appreciation shouldnt be overemphasized. The f
13、luctuation of the RMB is the result of changes to the current economic structure and will have an important impact on the economic structure of the future. Maintaining the status quo is short-sighted and will harm the long-term interests of China. The best choice is to speed up the transformation of
14、 the economic growth mode and adapt to the appreciation of RMB to make the most from the process. With the announcement of reforming the RMB exchange rate regime on July 21, 2005, great attention has been paid to the impacts of RMBs appreciation on Chinas trade. Since China being in the transition f
15、rom pegging to a managed floating regime, no existing approximate model and method can be utilized to investigate this question directly. In this paper, scenario analysis technique is used to give a study on this issue, coupled with the introduction of the substituted valuables: Japanese yen and Eur
16、o exchange rate. Our results show that RMBs appreciation would not bring severe effects on Chinas trade in 2005； however, the possible sustained reduction of export growth in 2006 should be paid more attention. It is also necessary and urgent to press forward with the reform of RMB exchange rate reg
17、ime, and put up the related supporting policies to avoid such sudden fluctuation as the Japanese situation after “Plaza Accord”. The RMB exchange rate became a hot topic after the announcement of exchange rate regime reform on July 21, 2005. The new regime, a managed floating exchange rate regime ba
18、sed on market supply and demand with reference to a basket of currencies, allows RMB to rise by 2%, with a daily 0.3% trading band based on the price of the previous day. With its rapid development, Chinas economy has become an increasingly important element in the global economic development and in
19、tegration. Against this backdrop, the impacts of RMBs appreciation on Chinas trade attract great attention. Before this reform of RMB, there has emerged a vast theoretical literature concentrated on the impacts of RMBs revaluation. However, relatively little research has been undertaken on the empir
20、ical analysis of this issue. Cyn-Young Park (2005), an economist in Asian Development Bank, analyzed macroeconomic impact of a “one-off ” appreciation of the RMB against the dollar using the Oxford Economic Forecasting model. This work may shed light on the dynamics between global imbalances and rev
21、aluation. The OEF model framework allows simulation analyses based on the global econometric structure, which will provide some quantitative results for the impacts of a revaluation on the concerned economies, such as the PRC, Japan, US, and other Asian countries. The stability of equilibrium state
22、may be damaged when the regime shifts, which, however, cannot be studied in this model. Zhang, a researcher in Chinese Academy of these results suggested that the impact of a revaluation on Chinas economy might change in the proportion of an appreciations scale. In fact, in the short term, the reaso
23、nableness of this proportionate result should be doubted. The main body of existing literature, however, has so far mostly centered on quantitative discussion describing the relation between trade and exchange rate. There has been surprisingly little empirical work that focus on the exchange rate re
24、gime shift, especially from pegging to the US dollar to a managed floating regime, No existing appropriate model or method can be found to support this kind of research directly. Therefore, some indirect methods should be experimented for studying this issue with the substitute variables introduced.
25、 In this paper, scenario analysis technique is used to give a sensitivity analysis of Chinas trade to the appreciation of RMB. The first type of scenarios is a hypothetic scenario being related with the current appreciation of RMB by 2%； while the second one that belongs to the historical scenario is based on the historical event-the Japanese yens variability after subscribing “Plaza Accord”.The remaining part of this
