Independent Research Project for Pre Masters
Academic year 2011-2012, Semester Two
Title: An evaluation of the impact of RMB appreciation on the Chinese agricultural trade
As a major part of the Chinese economy, China’s agricultural trade has developed since the 1980s. After the Chinese currency start being appreciated by the domestic government in 2005, this tendency seemed to soar. Researches have shown both internal and external factors can account for the RMB appreciation and both negative and positive effects have been presented on China’s agricultural exports and imports. Therefore, this project firstly discusses the different causes of RMB appreciation, followed by an evaluation of its impact on China’s agricultural trade which finally concludes the overall effects are beneficial.
1. The Causes of RMB appreciation4
1.1 Intrinsic factors4
1.2 Extrinsic factors5
2. The Impact on China’s agricultural trade6
2.1 Adverse effects on exports6
2.2 Beneficial effects on imports7
2.3 Evaluation of the effects7
In recent years, the appreciation of Renminbi (Chinese currency) has become a much-discussed topic in the world .The revolution of the Yuan can be traced back to July 21 in 2005, when Chinese government announced its domestic currency appreciated 2.1% against the U.S dollar (Goldstein and Lardy, 2006, p.1). Since then, the Chinese RMB has been in frequent fluctuation and appreciating gradually. This process can be treated as “a growth of the international purchasing power of domestic currency” (Zhang and Li, 2010, p.2) and be defined as “an increase in the value of a currency as measured by the amount of foreign currency it can buy” (Mankiw et al., 2011, p.712). Consequently, close attention has been paid to the impact of RMB appreciation, especially on agricultural trade, which has been a major part of the Chinese economy .The aim of this project is to evaluate how significant the impacts have been for different parts of the Chinese agricultural trade and overall, whether these has been positive or negative. As it has now seven years since China appreciated its currency against the U.S dollar, data and analysis are now available, and the impact of RMB appreciation can be critically researched. It can be clearly seen that overall China’s agricultural trade has been developed significantly though some evidences show adverse effects on its export trade.
This project will firstly review the literature related to the causes of RMB appreciation and its impact on China’s agricultural trade. It will then go on to the section 1, which will examine the different viewpoints about why RMB appreciated. Section 2 will first evaluate the impact of RMB appreciation on imports and exports of the Chinese trade and then conclude most of this area has been positively affected.
Since China appreciating its currency in 2005, the domestic agricultural trade has varied significantly. Many experts have researched the causes of RMB appreciation and also considered the impact of it on the Chinese agricultural trade since that year. This part will review some of the literature about why RMB appreciated, and then compare the authors’ arguments about different effects on agricultural exports and imports resulting from the RMB appreciation.
Many experts and researchers have analyzed the causes of RMB appreciation since it occurred (Yi, 2008, p.7; Das, 2009, p.8-9; Smith 2009, p.12; Razmi et al., 2012). The undervaluation of RMB exchange rate, which would cause stress to appreciate domestic currency, was the primary intrinsic factor (Das, 2009, p.8-9; Nair and...