The Impact Of RMB Exchange Rate Fluctuation On The Export .

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Advances in Social Science, Education and Humanities Research (ASSEHR), volume 2523rd International Conference on Judicial, Administrative and Humanitarian Problemsof State Structures and Economic Subjects (JAHP 2018)The Impact of RMB Exchange Rate Fluctuation onthe Export of China’s Mechanical and ElectricalIndustryLi WuShanghai Landward Machinery Co., Ltd.Shanghai, ChinaAbstract—Exchange rate fluctuation has an important impacton import and export trade. It can affect the total volume oftrade by affecting the price of trade commodity, and also affectthe total volume of trade by affecting the change of nationalincome. Electromechanical products are one of the key exportcommodities in China, and occupy a large proportion in exportshare. Therefore, studying the impact of exchange ratefluctuations on the export of mechanical and electrical productsis of great practical significance. The influence on the theory ofRMB exchange rate on export of review and summarize thehistorical changes of the RMB exchange rate policy and thehistorical volatility of the RMB exchange rate situation,historical development and the present situation of the export ofelectromechanical products, from 2006 -2016 years 10 years ofmonthly data of the RMB exchange rate, Chinese total exports,total exports of electromechanical products, and the mechanicaland electrical industry 4 categories of key national exportcommodities to do empirical analysis, after empirical analysisconclusion this paper put forward relevant proposals ofmeasures to the Chinese government and enterprises when facethe RMB exchange rate fluctuations.Keywords—RMB exchange rate fluctuation; mechanical andelectrical industry; export; influenceI.INTRODUCTIONSince the reform and opening up, China has entered theglobal economy and financial market system, and has formedan export-oriented development model that focuses on export.The RMB exchange rate system was implemented in 1994 as asingle system based on market supply and demand, with amanaged floating exchange rate system, but for a long time itwas actually a fixed exchange rate system pegged to the USdollar. This has created more favorable conditions for China'smanufacturing in China. After this, China’s internationalincome support continued to increase, and the expectations forRMB appreciation appeared, In July 2005, the RMB exchangerate reform was implemented a managed floating exchangerate system based on market supply and demand, Adjusted byreference to a basket of currencies, a managed floatingexchange rate regime. The flexibility of exchange rates hasincreased. Since the exchange rate reform, the RMB exchangerate has fluctuated more frequently. This paper focuses on theimpact of RMB exchange rate fluctuation on the mechanicaland electrical industry of China's major export commoditiesII.BACKGROUND AND PURPOSE OF THE STUDY"As of March 7, 2018, the middle exchange rate of theRMB exchange rate in the inter-bank foreign exchange marketwas US 1 to RMB6.3294." In 2005, the central bankannounced the reform of the RMB exchange rate system, andthe RMB continued to appreciate. The RMB was from 8.008on November 9, 2005, all the way was up to the value of6.0408 in 2014, and had a turning point in 2014. The RMBdepreciated slightly between 2014 and 2016. “Fig. 1” showsthe renminbi exchange rate between 2005 and 2016. The RMBexchange rate fluctuations can be described as very frequentduring the ten years of exchange reform.Copyright 2018, the Authors. Published by Atlantis Press.This is an open access article under the CC BY-NC license 06

Advances in Social Science, Education and Humanities Research (ASSEHR), volume 252a.Fig. 1. 2015-2016 exchange rate chart of RMB.Source: NetizensorganizesThe weighting of the bilateral real exchange rate for abasket of representative currencies takes into account therelative price differences between home and abroad, reflectingthe fact that China’s commodities have a certain degree ofcompetitiveness in the international market, This has a veryimportant impact on a country’s economic variables such asforeign trade, investment, and industrial structure.Accompanied by the diversification of China’s foreign trade,as the diversification of China’s foreign trade has beenstrengthened, the fluctuation of the RMB exchange rate hasbeen further intensified, and the impact of RMB exchange ratefluctuation on China’s export trade has become morecomplicated. How to treat the RMB exchange rate fluctuationproblem: On the one hand, China’s import and export haveexperienced rapid growth for many years, In recent years, thegrowth rate has slowed down; on the other hand, the flexibilityof the RMB exchange rate has been strengthened, and theimpact of fluctuations in the RMB exchange rate and exchangerate on China's imports and exports has become morecomplicated.fluctuation of RMB exchange rate is an opportunity and achallenge for the innovation and development of themechanical and electrical industry. The fluctuation of RMBexchange rate will have a lasting impact on the export ofmechanical and electrical industries. Under the background ofChina’s export development and the fluctuation of RMBexchange rate, will the export of mechanical and electricalproducts be affected and how much will be affected? What arethe effects of various products in the machinery and electronicsindustry? How to increase the added value of exports andavoid export risks are all issues that will be studied in depth inthis article.The impact of changes in the exchange rate of the RMB ismainly reflected in the foreign trade export sector.Electromechanical products play an important role in China'sforeign trade exports. Therefore, it is of great significance tostudy the impact of changes in the exchange rate of the RMBon the export of China's machinery and electronic industries.A. HUME DAVID (1752) Proposed the "Price-coin FlowSystem"The main contents are as follows: A country’s trade surpluscauses the country’s money supply to increase, which in turncauses domestic commodity prices to rise, Compared withforeign goods, the relative price of domestic goods rises, thusallowing consumers to increase purchases of foreign goods,reduce the purchase of domestic goods and make the currency(coin) lost overseas until it reaches equilibrium again. JoanRobinson proposed a theory of flexibility, which states that thebalance of payments can be affected by the depreciation of thelocal currency through relative prices, assuming that the priceof goods remains unchanged, and the elasticity of the importand export demand determines whether the devaluation of thelocal currency will improve the trade balance. Exchange ratechanges can affect the supply and demand of a country's goodsthrough trade and non-trade goods produced by a country andthe relative price changes of domestic and foreign products,thus affecting the country' balance of payments.Manufacturing industry is China's advantageous industry.Electromechanical products are China's key exportcommodities. We must implement "Made in China 2025",insist on innovation, intelligent transformation, and greendevelopment. These transformations and developments mustbe started from electromechanical products. Under openeconomic conditions, the fluctuation of a country’s currencyexchange rate will not only have an impact on the balance ofpayments, but will also have an impact on a country’s tradestructure and industrial structure. The development of theelectromechanical industry is affected by many factors, One ofthe important factors is the exchange rate.In the new situation, the fluctuation of the RMB exchangerate will have many impacts on China's export trade. For theexport of mechanical and electrical products in China, theIII.LITERATURE REVIEWWith regard to the related impact of exchange rate changeson exports, the mature theories are the price-coin flow system,the J-curve effect, and the Marshall-Lerner condition. Thispaper focuses on the following foreign classical theories anddomestic scholars on the impact of RMB exchange rate onexports.107

Advances in Social Science, Education and Humanities Research (ASSEHR), volume 252B. The Marshall Condition Proposed by Marshall and LernerThe theory holds that the devaluation of a country'scurrency requires certain conditions to improve the balance ofpayments, that is, the sum of the exporter's demand elasticityand the elasticity of the imported goods' demand is greater than1, and the interplay between economic variables is notimmediate, even if we Assume that Marshall’s condition isestablished, exchange rate devaluation cannot immediatelyimprove trade balances. On the contrary, in the early days ofexchange rate devaluation, the country’s trade balance maydeteriorate for a period of time before it improves. Thisphenomenon is called the J curve effect.The main reasons for the J curve effect are:A. Generally speaking, the quantity and price of tradecontracts signed will not change because of temporarycurrency devaluation, Therefore, when a country’s currencydepreciates, the foreign currency-priced imported goods willincrease the cost of paying the converted cost currency, andvice versa.B. Even if the trade agreement is signed after the currencydevaluation, the export growth will still be subject tosubjective cognition, decision-making and production cycleand other factors. Import traders may consider this to be asignal of further devaluation of the currency and furtherincrease imports.C. Alexander (1953) Proposed an Absorption AnalysisAbsorption analysis uses national income and domesticabsorption to analyze the impact of devaluation on tradereceipts and payments. The theory holds that the devaluationof a country’s currency needs to have idle resources toimprove the balance of payments, so that idle resources aftercurrency devaluation can enter the export production sector,and then can promote the increase of exports.D. W-Curve Effect Proposed by Paul Hallwood Et Al.The theory is that a devaluation of a country's currencymay produce a "W-curve effect," and the depreciated tradebalance of the previous period may deteriorate further, andmay lead to the next currency devaluation. When continuouscurrency depreciation is found, the country's trade balance willnot be able to eliminate the previous trade deficit and thusform a "W-curve effect."E. Multiplier AnalysisThe theory is analyzed from the perspective of the impactof national income on trade. It believes that a country’s importand export is a function of the country’s income. Exchangerates can affect a country’s national income by changing trademultipliers. Therefore, the exchange rate can not only affectthe trade balance of a country through relative price, but alsoaffect the trade balance by affecting national income.F. Monetary AnalysisThe theory considers the monetary balance as a monetaryphenomenon. Robert Mondale is the representative person whouses this analysis. Monetary analysis began to be familiar topeople in the mid and late 1960s. The theory was that when acurrency devaluation occurred in a country, as the country’sprice level increased and the actual currency balance decreased,In this case, because of the reduced expenditure of residents,the import is also reduced so that the trade balance can beimproved. However, changes in the relative prices ofdepreciated trade and non-tradable goods will affectproduction adjustments and shift expenditures, which can leadto a reduction in consumption and increase in the production oftrade goods, thus the trade balance is improved. On the otherhand, if a country’s currency appreciates, it will reduce theprice level in the country, increase the actual currency balance,increase people’s expenditures and increase imports, and thetrade balance will deteriorate.Domestic scholars have done a lot of research on theimpact of the RMB exchange rate on China’s imports andexports, but due to the different perspectives of scholars on theanalysis of the problem, the selected data and measurementmethods are different. And the conclusions reached are alsonot the same, it is concluded that Changes in the exchange rateof the renminbi have a positive or negative impact on importsand exports, but also concluded that there is no significantimpact.He Xiuqiang (2012) analyzed the impact of the realeffective exchange rate of the RMB on total export volume andexport commodity structure based on the data of ZhejiangProvince and concluded that the appreciation of REER couldsignificantly restrain the total export volume of ZhejiangProvince and optimize the export commodity structure ofZhejiang Province. Wang Yalin (2015) studied the effect ofreal effective exchange rate of RMB on the export structure ofmechanical and electrical products. Through analysis, thechange of the real effective exchange rate of RMB has anegative effect on the export structure of the mechanical andelectrical industry. This negative influence also indirectlyaffects the proportion of various types of merchandise exports.Zhang Dechao (2013) mainly studied the exchange rate riskaversion of an A export company from the perspective of theenterprise by using case analysis, he mainly studied the impactof exchange rate changes on export companies and How toavoid the exchange rate risk of export enterprises. Mou Dan(2013) studied the impact of the real effective exchange rate ofthe renminbi on China’s export structure, and the influence ofExchange rate on Export structure from the Perspective ofExport Commodity structure and Regional structure of Export,The conclusion is that the impact of RMB exchange rate on allindustries is negative, and the exchange rate appreciation has anegative effect on the export proportion of each province. ZouHongyuan and Luo Dawei (2014) analyzed the impact of thereal effective exchange rate of the renminbi industry on theexport volume of various industries in China. An Analysis ofthe eight main Industrial sectors in China is made according tothe Industrial Classification Standards of the Customs. Theresults show that there are significant differences between thereal effective exchange rate level and the change of the realeffective exchange rate. Pan Hongyu (2006) studied that thefluctuation of RMB bilateral exchange rate does not affectJapan’ exports in the long run, but there is a significant impactin the short-term. An Hui and Huang Wanyang (2009) studiedthe relationship between China's imports and exports of Japanand the United States and the fluctuation of the bilateral108

Advances in Social Science, Education and Humanities Research (ASSEHR), volume 252exchange rate of the RMB. The results show that the UnitedStates has significant effects on Japan’ import and exportincome, price and exchange rate fluctuations. Dai Zuxiang(1997) studied China's data from 1981-1995 and concludedthat China's import and export demand price elasticity satisfiesthe Marshall-Lernaer condition. Therefore, devaluation of theRMB exchange rate can improve the balance of China's importand export trade.B. Analysis on the Total Export Quantity of China’sMechanical and Electrical Products and the WholeCountry’s ExportTABLE I.TABLE OF CHANGES IN EXPORT VOLUME OF CHINA'SELECTROMECHANICAL INDUSTRY FROM 2007 TO 2016UNIT: BILLION US DOLLARS PERCENTAGEIV. HISTORICAL DEVELOPMENT AND PRESENT SITUATIONCHINA’ MECHANICAL AND ELECTRICAL PRODUCTS EXPORTYearsA. Export Policy and Scale Change of Mechanical andElectrical Products in ChinaSince the reform and opening up, China's foreign trade hasbeen greatly developed. In 2016, according to the lateststatistics of the General Administration of Customs, the importand export volume of goods in China fell by about 6%compared with 2015, and the trade surplus was US 509.963billion. Among them, exports of electromechanical productsaccounted for the largest proportion of China’s export trade,accounting for almost 60% of China’s export trade.However, with the development of exports, it also faces theproblems of unstable external demand and increased tradefriction. Therefore, it is very important to change the exportstructure and increase export competitiveness. In the 2015government report, the “Made in China 2025” is proposed.By the end of 2005, China’s total exports of mechanicaland electrical products reached US 435.901 billion, which wasfar higher than the target plan’s export. In terms of exportquality, the export volume of high-tech mechanical andelectrical products exceeded 50%. In general, the developmentof mechanical and electrical products in China during thisperiod was very rapid, and the export enterprises of domesticmachinery and electronic products were preliminary butdeveloped rapidly.By the end of 2010, China’s total export of mechanical andelectrical products doubled on a 2005 basis, Up to 954.866billion; high-tech products accounted for 51.3% of mechanicaland electrical products, 3% for Africa, and 5.55% for LatinAmerica. In terms of main body of export market, the numberof enterprises exporting more than 100 million US dollars ofmechanical and electrical products increased from 531 in 2005to 1220 in 2010, while private enterprises with high-techexports reached 9.2%.2015 is the last year of the “12th Five-Year Plan”. Fromthe data of a few years ago, the growth rate of all kinds ofmechanical and electrical products has dropped to the singledigits, and the export of electromechanical products hasslowed down in quantity. On the one hand, under the influenceof policy, and on the other hand, by external adverse factors,based on the actual situation at home and abroad, it is urgent tooptimize the export structure of China’s electromechanicalproducts and enhance the competitiveness of domesticelectromechanical 16National ExportValue (OneHundred MillionU.S. 21.122106.6523432.2322844.9320974.44a.Total ExportValue ofElectromechanical ProductsOne HundredMillion 1793.4012659.209961.9613188.9512303.93The Proportion ofElectromechanicalProducts Exportsin National 7.7353.70Source: Statistical Monthly of the General Administration of Customs of the People'sRepublic of China and Statistical Yearbook of China Customs. Annual data andpercentages are calculatedAs can be seen from Table I, from 2007 to 2016, the totalexport volume and the export volume of mechanical andelectrical products all have a steady increase. The total value ofnational exports has increased from 1,220.06 billion U.S.dollars in 2007 to 2,097.444 billion U.S. dollars in 2016,almost increased doubled; the exports increase ofelectromechanical products almost doubled, from 689.592billion U.S. dollars in 2007 to 1230.393 billion U.S. dollars in2016. The export volume of mechanical and electrical productshas always accounted for about 50-60% of the total exportvolume of the country, and the proportion is quite high. Thisshows that electromechanical products occupy a veryimportant position in China's export commodities.V.EMPIRICAL ANALYSISA. The Selection of DataIn terms of data, the monthly data of RMB exchange ratefrom August 2006 to August 2016, monthly data on grossnational exports, monthly data of export value ofelectromechanical products in China, Monthly data on nationalexports of steel, uncalcined aluminium and aluminium, motorsand generators, and automatic data processing equipment andtheir components for the four major categories of exportproducts under the machinery and electrical industry. We havechosen the data for the 10 years since the exchange reform in2005. On the one hand, because the trade data for the past tenyears are relatively easy to collect, on the other hand, theexchange rate has fluctuate frequently since the exchange ratereform, and it is closer to the current nation

impact of RMB exchange rate fluctuation on the mechanical and electrical industry of China's major export commodities II. BACKGROUND AND PURPOSE OF THE STUDY "As of March 7, 2018, the middle exchange rate of the RMB exchange rate in the inter-bank foreign exchange market was US 1 to RMB6.3294." .

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