Impact of the real exchange rates of the Renminbi and/or other East Asian currencies on China's exports and imports

International Economics and Finance Journal The strong development and the special characters of China's processing trade lead the necessity to separate the latter from ordinary one when analysing the trade impact of the renminbi real exchange rate. Using dynamic OLS method and an annual data over the period from 1983 to 2009, we show that 1) China's ordinary exports and imports are sensibly to the renminbi real appreciation as predicted the traditional theory. 2) The negative impact of the renminbi appreciation is stronger on ordinary exports than on processed ones because the value-added of the last ones consists of a major part from other East Asian economies implicated in the supply chains of the processing exports. 3) Thus, the impact of a Chinese exports-weighted real exchange rate of the Asian economies on the processed exports is much higher than that of the real appreciation of the renminbi. 4) Contrary to the prediction of traditional theory, we show that the waited impact of the two real exchange rates on the processed imports is a priori negative and confirmed by the econometric results. As China's trade surplus with developed countries mainly comes from the processing trade, an only renminbi revaluation could be inefficient to reduce the surplus.