This research proposal is an Applied—Consultancy Research Proposal.
Section one: Introduction
1.1 Statement of problem
Exchange rate is a ties of a country’s foreign economy and trade. The exchange rate regime is an important component of a country's economy system. The appropriate exchange rate regime is an important guarantee for economy growth of one country. Since formation mechanism reform of RMB exchange rate in 2005, it experienced a steady trend of appreciation of RMB exchange rate. But since early 2007, the RMB exchange rate was characterized by accelerating the appreciation as a whole. And the expectation to appreciation was also strengthened again. At the same time, the pressure on the RMB appreciation continued to grow worldwide. The appreciation of the RMB exchange rate and the corresponding impact on china’s economy are becoming the focus issues of international economy, and also has become the major theoretical and practical issues for China to deal with the increasingly complex international economic situation which must be faced up with. It has been a hot topic over the world.
1.2 Needs & Justification of the Study
With the development of economy globalization, international economy has become increasingly inseparable and interactive. As a link of international economy, the exchange rate is more flexible and fluctuant, and the consequent impact on international economy are also more intense. Exchange rate is a double-edged sword, the fluctuation of exchange rate has a multi-influences on a country's economy. There are positive and negative impacts. As the result of China's booming development and “strong economy”, RMB appreciation is inevitable. RMB appreciation will have a profound impact not only on China's economy but also on the regional economy and the world economy. To predict these ongoing changes and to develop the corresponding countermeasures are important.
The appreciation of RMB exchange rate will have a far-reaching impact on China's economy for long-term development, and it will also accelerate the process of RMB’s world monetary. Facing with the appreciation of the RMB exchange rate, China should take reasonable countermeasures to promote the reform of RMB exchange rate formation mechanism actively and steadily, and should improve the ability to adapt to fluctuations. In the end, China's exchange rate regime will be more flexible to response to the increasingly complex international economic situation.
1.3 Research Aims
The aims are to clarify that the appreciation of the RMB exchange rate is an inevitable outcome of China's economy development by using the exchange rate decision theory and an in-deep analysis of the international background and internal factors for appreciation of the RMB exchange rate.
In the meanwhile, it will state that the advantages outweigh the disadvantages of the appreciation of the RMB exchange rate after a synthetical evaluation on the influence on China's economy at all levels, including the positive and negative influence.
Besides, it will conclude that China should actively promote the reform of the RMB exchange rate formation mechanism, but the appreciation of the BMB exchange rate should take the initiative, controllable and gradual manner. It will also put forward to countermeasures which China may take facing the situation of appreciation of the RMB exchange rate and recommendations on the reform of the RMB exchange rate regime.
1.4 Research Objectives
1. Empirically analysis the background of appreciation of RMB exchange rate.
2. Defining main internal factors of appreciation of RMB exchange rate.
3. Defining major external factors of appreciation of RMB exchange rate.
4. To access the positive influences (advantages) on China’s economy development.
5. To access the negative influences (disadvantages) on China’s economy development.
6. Discussing the short-term measures to relieve the pressure of appreciation of RMB exchange rate.
7. Exploring the long-term strategy to deal with the appreciation of the RMB exchange rate.
8. To foresee the future trend of RMB exchange rate regime.
1.5 Definition of Terms
Exchange rates and the exchange rate regime The exchange rate states the price, in term of one currency, at which another currency can be bought. Exchange rate regime (exchange rate arrangements) refers to a series of arrangements or requirements set up by a country's monetary authority according to exchange rate movements. Traditionally, in accordance with the magnitude of exchange rate fluctuations, the exchange rate system was divided into two types: a fixed exchange rate system and the floating exchange rate system.
Fixed exchange rates and floating exchange rates Fixed exchange rates are rates set by government decisions and maintained by government actions. Floating exchange rates means the government does not intervene in the foreign exchange markets, but simply allows the exchange rate to be freely determined by demand and supply.
Appreciate and depreciate A nation’s currency is said to appreciate when exchange rates change so that a unit of its own currency can by more units of foreign currency. The currency is said to depreciate when exchange rates change so that a unit of its currency can buy fewer units of foreign currency.
Devaluation and revaluation A devaluation is a reduction in the official value of a currency. A revaluation is an increase in the official value of a currency.
Section two: Literature Review
2.1Determination of the rate of exchange
In a free foreign exchange market, the rate of exchange is determined by demand and supply (Sloman, J. 2007). But in the long run, purchasing-power parity plays an important role in the exchange rate determination. Pilbeam (1998) stated that in the presence of a competitive market structure and the absence of transport costs and other barriers to trade, identical products which are sold in different markets will sell at the same price when expressed in terms of a common currency. In the mean time, the economic activity is much more important in the medium run. It says a nation that grows more rapidly than its trading partners may find itself with a depreciating currency. As to the short run, interest rate differentials determine exchange rate. A rise in interest rates often will lead to an appreciation of the currency, and a drop in interest rates will lead to a depreciation (Baumol and Blinder, 1991).
2.2 The reform process of RMB exchange rate regime
According to Zhang (2003), the reform process of RMB exchange rate regime experienced four stages.
Reform Stage I (1981-1985). The exchange rate reform was first contemplated in the late 1970s when the launch of general reforms. The government decided to adopt, in addition to the official exchange rate, an `Internal Rate for Trade Settlements' (IRTS). This marked the first official recognition that the then exchange rate was overvalued.
Reform Stage II (1986-1991). The experiment with the crawling peg ended in 1986. The official rate was then pegged, with occasional but large devaluations happening between intervals. In 1991, China formally announced the adoption of a floating exchange rate regime. While the official rate was pegged, the swap exchange rate was gradually freed. Its fluctuations implied the `effective' exchange was in fact flexible, rendering the notion that during the period China was in a fixed rate regime an inaccurate description.
Reform Stage III (1991-1993). According to Chinese authorities, only in this period was Chinese currency formally adopted as a floating exchange rate regime, although the IMF had already classified China as having a managed floating rate system since 1987.
Reform Stage IV (1994-). To redress the problems caused by the swap market, the government merged the exchange rates and moved towards convertibility in 1994.
2.3 The internal and international backgrounds on the revaluation of RMB
In 2004, Japan first call for China to revalue the RMB, then the US, Europe and some other countries joined Japan’ call. They claim that RMB is undervalued, for China pegs its currency to an increasingly weaker US dollar, they believe China is now getting an unfair competitive assist. They accuse Beijing of keeping the value of the its currency, the RMB, at an artificially low level that unfairly boosts Chinese exports by making them cheaper even as those exports cut down American job opportunities. If it only revalues the RMB, the rest of the world would then have more of a chance (Liao, 2004).
Japan, the US and Europe think RMB is undervalued and call for RMB to revalue on ground of the fellow evidences: First, China have accumulated hefty foreign exchange reverse, China’s total foreign currency reserves have been rising rapidly. It was 13.98bn in 1997, 40bn in 2003, and 106.6bn in 2006 and reached $152.8bn at the end of 2007. Second, China’s export has been steadily and rapidly increasing. It is the fourth-largest trading partner of the US and among the top five trading partners of Japan and many Asian and European countries.
China has experienced a sustained and relatively high economy growth since the implementation of its reform and open-up strategy.
Table 1, Difference in the rate of economy growth between China and the United States in 1994-2006
| Rate of economy growth | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 |
| China | 12.6% | 10.5% | 9.6% | 8.8% | 7.8% | 7.1% | 8.0% | 7.5% | 8.3% | 10% | 10.1% | 10.4% | 10.7% |
| U.S.A | 3.5% | 2.0% | 2.4% | 3.9% | 3.9% | 4.2% | 3.7% | 0.5% | 2.2% | 2.1% | 4.1% | 3.5% | 3.3% |
| Difference | 9.1% | 8.5% | 7.2% | 4.9% | 3.9% | 2.9% | 4.3% | 7.0% | 6.1% | 7.9% | 6% | 7.1% | 7.4% |
Table 2, 1980 - 2000 Comparison of nation strength of five countries (the proportion of the world)
| nation | 1980 | 1985 | 1990 | 1995 | 1998 | 2000 | 1980—2000 change | average annual change |
| China | 4.736 | 5.306 | 5.6 | 7.163 | 7.782 | 8.770 | 4.034 | 0.1692 |
| India | 3.376 | 3.615 | 3.735 | 4.008 | 4.365 | 4.543 | 1.167 | 0.0549 |
| Japan | 6.037 | 6.337 | 7.317 | 8.535 | 7.749 | 7.729 | 1.692 | 0.0951 |
| Russia | 0.569 | 0.53 | 1.607 | 3.271 | 2.080 | 12.925 | -0.345 | |
| U.S.A | 22.485 | 22.022 | 22.138 | 21.903 | 22.785 | 22.518 | 0.033 | 0.0167 |
2.4 The impact on China's economy of RMB Revaluation
According to Nobel Prize Laureate Robert Mundell (2006), “A large RMB appreciation wouldn’t help resolve global current account imbalances, but would devastate China, causing drastic deflation, impoverishing the rural sector, and cutting its growth rate by as much as half.” McKinnon (2006) states that, in opening up the capital markets, China needs to strengthen the financial regulatory systems. It has great impact, especially on China's domestic commercial banks before liberalizing the exchange rate, even if only relax the RMB floating range.
Section three: Research Approach and Methodology
3.1 Research Approach
Research approached are mainly divided into two categories, namely deductive and inductive (Saunders et al, 2007). They are better at doing different things. The practical reality is that research rarely falls neatly into only one philosophical domain as suggested in the “onion” (Saunders et al, 2007). And business and management research is often a mixture between positivist and interpretivist.
Though there are rigid divisions between deduction and induction, not only is it perfectly possible to combine deduction and induction within the same piece of research, but also it is often advantageous to do so. The most important is the nature of the research topic. So combining research approaches should be better, which deductive approach will be applied mainly as research approach, in the mean time, inductive approach also will be used as a auxiliary approach.
3.2 Research Design, Research strategy, Methods choices, Time horizons
Hakim (2000) compares a researcher designing a research project with an architect designing a building. Research design focuses upon turning a research question and objectives into a research project. It considers research strategies, choices and time horizons.
According to the nature of the research question, archival research which makes use of administrative records and documents as the principal source of data will be developed as a research strategy. This will inevitably be constrained by the nature of the administrative records and documents due to not containing the precise information needed to the research question. It is necessary to ensure what data are available and to make the most of it.
Multiple methods choices-combining quantitative and qualitative techniques and procedures will be used as research choice. This is increasingly advocated within business and management research (Curran and Blackburn, 2001). Not only a single data collection technique and corresponding analysis procedures but also more than one data collection technique and analysis procedures should applied simultaneous. Both multi-method quantitative and multi-method qualitative study will be involved. Just as Tashakkori and Teddie (2003) state that multiple methods are useful if they provide better opportunities for you to answer your research questions and where they allow you to better evaluate the extent to which your research findings can be trusted and inferences made from them.
Basing on the research question, cross-section study tends to be employed as the time horizon, because it is recognized that the research project is time constrained.
3.3 Data collection, Procedure for Data Analysis
Most research projects require some combination of secondary and primary data to answer research question. For certain types of research project, such as those requiring national or international comparisons, secondary data will probably provide the main source to address research objectives. This research question just is the same as the type of research project. So secondary data collection will be used mainly.
Data that have already been collected for some other purpose, perhaps processed and subsequently stored, are termed secondary data. There three main types of secondary data: documentary, survey-based data and those from multiple sources. Researcher will make full use of data from, such as vast organizations, quality daily newspapers, government departments and trade organizations. These secondary data are easily obtained via published form, the internet and CD-ROM. Though some of these data in particular documents are difficult to access, researcher is a civil servant of Liaoning provincial government who is charge of macro-economy administration and thus has the convenience to gain these data. So the researcher owns the resource to collect the data and the data is reliability and validity.
It is acknowledged by researcher that though secondary data has many advantages such as saving resources, the disadvantages are obvious. Secondary data will have been collected for a specific purpose that differs from your research question(s) or objectives (Denscombe, 1998). Consequently, the data researcher is considering may be inappropriate to research question due to being unsuitable of aggregation and definitions, the difference of initial purpose and no real control over data quality. So it is necessary for researcher to evaluate the precise suitability of the secondary data sources. The evaluation will include both reliability and any likely measurement bias.
Quantitative analysis techniques such as graphs, charts and statistics, which will help researcher to explore, present, describe and examine relationships and trends within the research data will be used. After collection of data, statistical techniques in Microsoft Excel and SPSS (Statistical package for the social science) will be used for data analysis. Descriptive analysis of data is selected and conducted in various areas.
Qualitative data are non-numerical data and have not been quantified. They result from the collection of non-standardized data that require classification and are analysed through the use of conceptualization. To be useful these data need to be analysed and the meanings understood. So qualitative analysis is necessary. The process of qualitative analysis will involves the development of data categories, allocating units of original data to appropriate categories, recognizing relationships within and between categories of data, and developing and testing hypotheses or propositions to produce well-grounded conclusion. The computer-assisted qualitative data analysis software (CAQDAS) will be applied in the qualitative analysis process.
3.4 Steps
Saunders et al (2007) describes research as an action that is being undertaken in a systematic way, carried out with a clear purpose in mind, and methodology as a theoretical concept of how the research should be done.
Figure1:
(1) positivist and interpretivist (Research philosophy)→(2) deductive approach and inductive approach (Research Approach)→(3) archival research (Research Strategies) →(4) cross-section study (Time Horizons) →(5) secondary data collection (Data Collection Methods)
As the figure shows the question of research philosophy arises at first, then the research approach. The next step is adoption of appropriate research strategy needed for answering the research questions. After theses steps we will move to the step of data collection methods in order to get information needed. The last step of the research process of this study will be the analysis of collected data to provide finding in study.
3.5 Credibility
Reliability and validity are two particular emphases on which researcher will pay in order to reduce the possibility of getting the answer wrong. Rogers (1961, cited by Raimond, 1993) summarized that scientific methodology needs to be seen for what it truly is, a way of preventing me from deceiving myself in regard to my creatively formed subjective hunches which have developed out of the relationship between me and my material. It is necessary to take some measures to reduce and prevent the threats to reliability and validity. Researcher will pay more attention to ensure that the results are valid and reliable.
3.6 Contingencies and Ethical Issues
In the context of research, ethics refers to the appropriateness of your behaviour in relation to the rights of those who become the subject of your work, or are affected by it (Saunders et al., 2007). Potential ethical issues should be recognized and considered from the outset of the research because ethical issues are likely occur at all stage of research project including how to formulate and clarify research topic, design research and gain access, collect data, process and store data, analyse data and write up research finding in a moral and responsible way. A number of key ethical issues arise across the stages and duration of research project. The researcher will pay more attention to ensure that the way of designing research is both methodologically sound and morally defensible to all those who are involved.
Section four: Project Plan, Timetable Schedule
Date
| Date Task | May | June | July | August |
| Literature review | do | do | do | do |
| Reviewing theory | do | do | do | do |
| Collecting data | do | do | ||
| Analyzing data | do | |||
| Drawing an outline | do | do(before 5th) | ||
| Writing dissertation | do(after 6th) | do(before 5th) | ||
| Draft completed | do(from 6th to 20th) | |||
| Revising draft as necessary | do(from 21st to 25th) | |||
| Submission | do |
References:
Copeland, L. S. (2000) Exchange Rates and International Finance. 3rd ed. Pearson Education.
Curran, J. and Blackburn, R.A. (2001) Researching the Small Enterprise, London, Sage.
Denscombe, M. (1998) The Good Research Guide, Buckingham, Open University Press.
Hakim, C. (2000) Research Design: Successful Design for Social and Economic Research. 2nd ed, London, Routledge.
Liao, L. M. (2004) Discussion on the Impact of Revaluing Chinese Currency. China Business Review, Volume 3, No.3
http://www.stanford.edu/~mckinnon/papers/International%20Finance%20China%20peg.pdf
McKinnon, R. (2006) Why China Should Keep its Exchange Rate Pegged to the Dollar:
A Historical Perspective from Japan. International Finance.
Mundell, R. A. (2006) “Ahead of His Time.” Interview with Laura Wallace. Finance and Development 43 (3).
Pilbeam, K. (1998) International Finance, 2nd ed. Macmillan Press Ltd.
Raimond, P. (1993) Management Project, London, Chapman & Hall.
Rogers, C.R. (1961) On Becoming a Person, London, Constable.
Saunders, M. Lewis, P. and Thornhill, A. (2007) Research Methods for Business Students . 4th ed, Harllow: Pearson Educated Limited.
State Administration of Foreign Exchange. Data and statistics (China) from
http://www.safe.gov.cn/Statistics/Reserve.htm.
Tashakkori, A. and Teddie, C. (2003) Handbook of Mixed Methods in Social and Behavioural Research, Thousand Oaks, CA, Sage.
Zhang, Z. (2000) Exchange Rate Reform in China: An Experiment in the Real Targets Approach. World Economy, Vol. 23, Issue 8.
http://web.ebscohost.com/ehost/detail?vid=5&hid=4&sid=5367b775-57ac-4c32-bee4-f3137ddd853b%40SRCSM2&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=4335879
Bibliography:
Baumol, W. J. and Blinder, A. S. (1991) Economics: Principles and Policy, 5thed, Harcourt Brace Jovanovich International Edition,
Copeland, L. S. (2000) Exchange Rates and International Finance. 3rded, Pearson Education.
Saunders, M. Lewis, P. and Thornhill, A. (2007) Research Methods for Business Students. 4th ed, Harllow: Pearson Educated Limited.
Sloman, J. (2007) Essentials of Economics. 4thed, Pearson Education, Harlow.下载本文
