The impact of RMB exchange rate changes on the prices of imported products by Chinese firms

Abstract

Controlling unreasonable increases in import prices and mitigating the risk of imported inflation are major real-world issues currently faced by China. As an important factor affecting import prices, scientifically revealing the pass-through patterns and mechanisms of exchange rates on import prices is crucial for the Chinese government to manage import price increases through exchange rate policy adjustments. This paper examines the impact of exchange rate fluctuations on the prices of imported products for Chinese firms. The results indicate that: (1) RMB appreciation significantly lowers import prices, with exchange rate pass-through exhibiting incompleteness and asymmetry. (2) Factors such as the quality and non-quality pricing of import products, overall market power in China, market power of importing firms, and import prices from third-party sources affect the degree of exchange rate pass-through. (3) The degree of pass-through varies based on product usage, degree of product differentiation, substitution elasticity of the product, and whether the product is a commodity. The findings of this study provide policy insights for China to effectively address rising import prices and mitigate import risks.