After China's entry into WTO, the scope and depth of China enterprises' participation in international economic activities have changed greatly, and it is inevitable to avoid exchange rate risks. The central bank increased the range of exchange rate fluctuations, enhanced its flexibility, and broke the single peg to the US dollar. Instead, it chose some currencies to form a basket of currencies, and gave them a certain weight according to market demand, and established a RMB exchange rate formation mechanism, so as to make corresponding adjustments when international currencies fluctuated. Since the exchange rate reform for more than two years, the RMB has continued to appreciate. The appreciation of RMB has also brought a series of impacts on China's economy.

since January 1, 1994, China has implemented a single and managed floating exchange rate system based on market supply and demand. Based on the supply and demand of the foreign exchange market, RMB allows the market exchange rate to fluctuate around the benchmark exchange rate within a certain range. Since then, the RMB exchange rate has gradually become market-oriented. In 1996, China realized the convertibility of RMB under the current account three years ahead of schedule according to the requirements of the International Monetary Fund, but the foreign exchange receipts and payments under the capital account are still strictly controlled. During this decade, this exchange rate system has played a positive role in stabilizing China's foreign exchange market, promoting the development of international trade and attracting foreign investment. From the international environment, Asian countries changed from pegged exchange rate system to floating exchange rate system after the financial crisis, and the economies of Southeast Asian countries began to recover. In this case, China has the objective conditions and international environment to increase exchange rate flexibility. So on July 21st, 25, China began to implement a managed floating exchange rate system based on market supply and demand and with reference to a basket of currencies. The RMB exchange rate is no longer pegged to a single dollar, but fluctuates with reference to a basket of currencies according to market supply and demand. At the same time, according to the domestic and international economic and financial situation, based on market supply and demand, the change of RMB multilateral exchange rate index is calculated with reference to a basket of currencies, and the RMB exchange rate is managed and adjusted to maintain the basic stability of RMB exchange rate at a reasonable and balanced level. Since the implementation of exchange rate reform for more than two years, it has had a far-reaching impact on import and export trade, international investment, international industrial division of labor, domestic industrial structure adjustment, monetary policy and its regulation mechanism, and even household consumption.

China is a big country in import and export trade, which accounts for 21% of GDP. The biggest impact of exchange rate changes on China is on import and export trade. China's main export industries are textile, clothing, chemical industry, electronic machinery manufacturing and so on. Due to the different elasticity of export price, the adverse effects of RMB appreciation on exports of different industries are different. Because China is a big cotton-producing country, and the labor cost is low, textiles have strong competitiveness in the world, and their export price elasticity is low. Because clothing products are also influenced by factors such as brand, design and quality, and Chinese products are not dominant in these aspects, the export price elasticity is higher than that of textile products. In the chemical industry, China has similar advantages to the textile industry, so it also has low export price elasticity. Due to the continuous technological progress in the electronic communication equipment manufacturing industry in China, the degree of competition in this industry is also high, and a number of enterprises with strong competitiveness in the world have been cultivated. At the same time, these products are technically mature. Therefore, Chinese enterprises can obtain stable market share with low cost, and the export price elasticity is low. It can be seen that when the RMB appreciates, on the one hand, the price of export products in foreign markets increases, and the sales volume decreases. For goods with low export price elasticity, the export income will increase, but for goods with high export price elasticity, the export income will decrease. On the other hand, the foreign exchange income from export needs to be converted into RMB, and the appreciation of RMB will bring exchange losses of export income. The income of commodities with high export price elasticity decreased more, while that of commodities with low export price elasticity decreased less. The export volume of different industries will be affected to varying degrees, and their profits will inevitably decline, which is particularly significant for the clothing industry and electronic communication manufacturing industry. Generally speaking, because most of China's exports are processing trade, the proportion of imported raw materials in export products is high, so although the appreciation of RMB weakens the price competitiveness of the final product, it can buy more raw materials and intermediate products, so the impact of RMB appreciation on export competitiveness is limited.

Like exports, RMB appreciation has both direct and indirect effects on imports. The direct impact is that after the appreciation of the exchange rate, the price of imported goods will change from foreign currency to RMB, which will decrease by the same amount. The indirect effect is that the change of RMB exchange rate will also cause the adjustment of import volume through the change of import commodity price. When the import price changes, according to the law of demand price, the demand for imported goods in China's market will inevitably be adjusted accordingly. When the elasticity of demand is different, the increase of import volume is also different. According to the theory of demand elasticity, the higher the demand elasticity, the greater the adjustment of import volume caused by the change of import price. Generally speaking, due to the continuous improvement of the production technology level of Chinese enterprises, more and more imported goods have replaced products in China, and the gap in technology and quality has been narrowing. At the same time, many foreign manufacturers have begun to transfer their production bases to China, which has also increased the competition between domestic products and imported goods. All these are conducive to reducing the demand price elasticity of imported goods in China's market. Therefore, after the appreciation of the exchange rate at the bottom of the window, the decline in the price of China's imported goods will not cause a substantial increase in imports, and will have little impact on China's imports. However, due to the industry differences in price elasticity, the impact of RMB appreciation on different industries is also different. For the import industries of production factors, appreciation will reduce the import cost of these industries, and then improve their profitability. The industries with high import dependence in China mainly include oil and gas, mining industry and textile industry. For import substitution industries, the appreciation of RMB will reduce the price of imported products, which will have an impact on domestic similar products, especially those products that are still far from the world advanced level in terms of technical content, brand and quality, which will definitely affect their prices and market share, thus leading to the deterioration of profitability, such as transportation equipment manufacturing, electronics and communication equipment manufacturing.

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The impact of RMB appreciation on China's trade has also effectively regulated the development of China's industrial structure. After RMB appreciation, the prices of imported international raw materials have been reduced, and the economic sustainable development strategy focusing on expanding domestic demand has been effectively developed. At the same time, due to the appreciation of RMB, the competitiveness of China's export products focusing on processing has been reduced, which is undoubtedly a challenge to the labor-intensive economy that mainly relies on cheap power. Therefore, How to develop capital-intensive economy also puts forward further requirements, such as speeding up the pace of structural adjustment, enhancing the ability of independent innovation, improving competitiveness, tapping the potential by strengthening internal management and technological transformation, mastering various foreign exchange hedging tools and means as soon as possible, and enhancing their ability to adapt to exchange rate fluctuations and respond to exchange rate changes. After the appreciation of RMB exchange rate, the change of import and export prices leads to the decrease of exports, the increase of imports and the change of trade conditions, which also deepens the adjustment of industrial structure. Under other conditions unchanged, more oil import and export price elasticity determines the quantitative analysis of China's trade development since the reform and opening up. The elasticity of China's export price is about 1, that is, for every 1% increase in China's export price relative to the world export price, the growth rate of general trade exports decreases by 1%. The elasticity of import price is about .4, that is, every 1% decrease in China's import price relative to the world's import price increases the import growth rate by .4%. Since the absolute value of the sum of export elasticity and import elasticity is 1.4, which is greater than 1, according to Marshall-Lerner conditions, RMB appreciation can effectively reduce China's trade surplus and improve China's international balance of payments imbalance.

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However, the appreciation of RMB has also brought a series of negative effects to China's economy, which cannot be ignored. We should correctly understand this and effectively eliminate the negative effects caused by appreciation.

first of all, the appreciation of RMB has hindered the good development momentum of China's foreign economy and reversed China's position as a global manufacturing center. The continuous appreciation of RMB will greatly damage China's long-term international competitiveness, weaken China's comparative advantage in labor-intensive industries, and greatly damage China's initial accumulated competitive advantage in electromechanical and high-tech industries. At present, China's export mainly depends on price competitiveness, and it will take some time for major adjustment of industrial structure and improvement of non-price competitiveness. The result of RMB's continuous appreciation will inevitably be that exports are seriously blocked, the pace of foreign industrial transfer is greatly slowed down, and the inflow of international direct investment is slowed down. China's position as an important base of global manufacturing will be weakened. This will greatly delay the pace of realizing new industrialization and industrial upgrading in China, increase the employment pressure, and further highlight the contradiction of insufficient effective demand in China. The appreciation of the yen made Japan's exports drop from an average annual growth rate of more than 1% after the war to an average annual growth rate of .4% from 199 to 1995, indicating that the continuous appreciation of the local currency will bring a major blow to exports. At present, China's accession to the WTO and the accelerated development of economic globalization have given China a strategic opportunity to build a global advanced manufacturing center. We must prevent this process from being reversed because of the continuous appreciation of RMB.

Secondly, the appreciation of RMB aggravates deflation, which makes macro-control face various traps. Under the influence of scientific and technological revolution, economic globalization and trade liberalization, the prices of manufactured goods in the world have been declining continuously, especially since the second half of the 199s, there has been a trend of global deflation. Originally, the decline in world prices will exert a major downward pressure on domestic prices through import and export channels, and the continued appreciation of the renminbi will make domestic prices worse. First, the appreciation of RMB will lead to the lower cost of export products, which in turn will have a price comparison effect on domestic prices and make the prices of related products fall; Second, the appreciation of RMB will reduce the import cost, which will lead to imported deflation and contribute to the price decline of departments using imported inputs and competing departments; Third, the expectation of continuous appreciation of RMB exchange rate will bring forward and wave-catching downward pressure on the market price, which will cause distortion and disorder in the market operation and double the deflationary pressure; Fourth, the continuous strong pressure and expectation of local currency appreciation will also have an indirect and sometimes very strong tightening impact on domestic prices through financial and investment channels.

Once the continuous appreciation of the local currency and the expectation of appreciation are solidified, it will also bring a series of interference to consumption, investment and other economic behaviors, and form bad psychological expectations. If it is not done well, it will put macro-control into trouble. First, under the prominent contradiction of insufficient effective social demand in China, private investment and consumption are even weaker; Second, the dependence of economic growth on active fiscal policy is increasing, not only the policy effect will gradually decrease, but also the financial risk will increase day by day; Third, with the cycle of currency appreciation and deflation, monetary policy faces the risk of falling into a liquidity trap. All these will make the role of macroeconomic policies increasingly narrow and the room for regulation more limited. In addition, the continuous appreciation of the local currency will also bring about the inflated income and inflated assets, which will easily lead to a bubble economy, stimulate the irrational expansion of the virtual economy, and finally bring greater impact to the macro economy.

RMB appreciation will have a far-reaching impact on China's economy. Therefore, perfecting the reform of RMB exchange rate formation mechanism is of great significance for regulating the balanced development of import and export trade, improving the balance of international payments, establishing and perfecting the socialist market economic system, deepening the reform of economic and financial system and improving the macro-control system. It conforms to the requirements of the CPC Central Committee and the State Council on establishing a managed floating exchange rate system based on the market, perfecting the RMB exchange rate formation mechanism and keeping the RMB exchange rate basically stable at a reasonable and balanced level, conforms to China's long-term interests and fundamental interests, is conducive to the implementation of Scientific Outlook on Development, and is of great significance to promoting comprehensive, coordinated and sustainable economic and social development.