The Influence of Oil Price Shocks on China’s Macro-economy :A Perspective of International Trade

International trade has been playing an extremely significant role in China over the last 20 years. This paper is aimed to investigate and understand the relationship between China’s macro-economy and oil price from this new perspective. We find strong evidence that the increase of China’s price level resulting from oil price shocks is statistically less than that of its main trade partners’. This helps to understand the confused empirical results estimated within SVAR framework and sheds light on the recent data. More specifically, as for the empirical results, we find China’s output level is positively correlated with the oil price, and oil price shocks slightly appreciate RMB against US dollar. Positive correlation between China’s output and oil price shocks is presumably resulted from the drop of China’s relative price resulting from oil price shocks, which is inclined to stimulate China’s goods and service exports. The slight appreciation of RMB could be justified by the drop of China’s relative price, which is indicated by economic theory. Moreover, constructing a simple model, our new perspective also helps to understand the recent fact that together with the dramatic surge of world oil price, while the oil imports of the other major countries (especially the largest oil import country US) in the world steadily decline or remain stable, China’s oil imports, in contrast, keep high-speed rising from the year 2004.