Renminbi exchange rate assessment and competitors' exports: New perspective

The currency assessment of China's Renminbi (RMB) has attracted much attention due to its growing impacts and spillover effects toward the world economy. This paper examines the impacts of currency under- and overvaluation on China's exports and the spillover effects of these misalignments toward the exports of 9 Asian main economies. We argue that the exchange rate deviation from the long-run equilibrium value, rather than the exchange rate change, is the main force for global trade imbalances. We find consistent yet mild RMB undervaluation as well as overvaluation across time. Most of the Asian economies in our analyses are impacted by these RMB misalignments. Both bilateral and weighted average real exchange rates are applied to ensure the robustness of the model estimations. We also discuss the implications from a series of China's foreign exchange policy reform and industrial structure transformations on the empirical findings. Several policy implications and suggestions are made from the empirical findings.