Variable Impact of Renminbi Appreciation on Chinese Industries’ Profitability

YUAN Zhigang and SHAO Ting

1 Professor at the School of Economics, Fudan University, Shanghai, China

2 Research Associate at the Institute of Market Economy, Development Research Center of the State Council, Beijing, China

Abstract:

This paper uses the input-output tables from 2007 to estimate the exchange-rate risk exposure of all 42 sectors of the Chinese economy. It then demonstrates a new
quantitative approach for examining the differential impacts of Renminbi appreciation on the export of finished goods and the import of intermediate inputs in each sector, and estimates the changes in profitability of each sector under different degrees of Renminbi appreciation. The results indicate that appreciation of the Renminbi will increase the profitability of 22 sectors, which are generally monopolistic, capital-intensive, and reliant on R&D, and reduce the profitability of 20 sectors, which are generally competitive, labor-intensive, and less reliant on R&D. This suggests that the degree and pace of Renminbi appreciation must be coordinated with industrial and employment policies in order to reduce exchange-rate risk exposure through trade restructuring, to improve economic structure, to promote competition and employment, and to maintain steady and sustainable economic growth.

Key words: Renminbi appreciation, exchange-rate risk exposure, change in profitability, input-output table

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