Abstract: ASEAN has surpassed Japan to be the third largest trade partner of China, occupying an important position in China’s foreign trade. By applying the co-integration method and making use of the quarterly data, this paper conducts an empirical analysis on the relationship between the trade balances of China and 5 ASEAN countries, RMB real effective exchange rate, the real GDP of the 5 ASEAN countries, and the real GDP of China. The results show that there exists a long term equilibrium relationship between the four variables. There is a causal relationship between RMB real effective exchange rate and the trade balances of China and the 5 ASEAN countries. There exists a “reverse J-curve effect” between the appreciation of RMB real effective exchange rate and the trade between China and the 5 ASEAN countries, namely, the appreciation of RMB can improve the trade balance in short term. Therefore, the bilateral trade balance of China and the 5 ASEAN countries can be adjusted through changing RMB real effective exchange rates.

Key words: RMB real effective exchange rate; trade between China and 5 ASEAN countries; VAR model; reverse J curve effect