By estimating trade balance equation, export equation and import equation,\nthis paper shows empirically that China�s trade surplus is not sensitive to the\nfluctuations in the real effective exchange rate, but the price elasticity has become\nlarge and significant in the period from 2005 onwards after the new exchange\nrate regime was instituted on 21 July, 2005. In the latter case, I found\ndivergent results on ordinary trade and processing trade, i.e . the appreciation\nin Renminbi has found to reduce ordinary trade balance and increase\nprocessing trade balance. In addition, I found the appreciation has larger impact\non processing trade (both the processing exports and the processing imports)\nthan it has on ordinary trade.
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