RMB Appreciation
The impact of RMB appreciation
As the comprehensive strength of the national economy grows,the Chinese currency,the Renminbi (RMB) began to appreciate.Effects of the RMB's appreciation since July have been felt both domestically and abroad,and will become even more significant with time.China should embrace the new opportunities that appreciation has opened-up and allow more room for the national economy to grow in the process of globalization.
People need to be aware that the appreciation of the RMB may have some less desirable effects on economic growth in the short term.Currently,China's export market still relies heavily on cheap labor to compete in the international market.As its added value is low,the appreciation of the RMB will affect China's export and consequently the overall growth rate of the national economy.However,there are also many positive aspects to the appreciation of the RMB.In the long run,RMB appreciation will generate more development opportunities.People will feel richer,it will improve China's status and influence in the world economy and it will change the commodity structure and the flow of investment.It will also have a significant influence on the structure of domestic production resources.
First of all,it will accelerate industrial upgrading.In a market economy,the fluctuation of the foreign exchange rate involves the international balance of incomes and expenses and is an important price indicator.The appreciation of the RMB means that the price of various domestic resources,especially land and labor,will go up in relative terms and this will speed up necessary adjustments to the commodity mix and domestic industry.RMB appreciation will gradually change the value of the international and domestic markets.Domestic enterprises will rely more on sales to the domestic market so that national economic growth is less dependent on export demand and a more reasonable industrial structure will form.
Secondly,it will promote technical innovation.In many countries,technical innovation relies primarily on a market mechanism which makes good use of price as a lever.China's production process is enormously costly in terms of resources and energy,and labor is too cheap.The appreciation of the RMB will cause an increase in the domestic prices of such things as land and labor as well stimulate the demand for innovation.Products for export must rely on technological innovation to be more competitive internationally.In the domestic market,enterprises are also forced to compete through technological innovation.Simply speaking,the appreciation of the RMB will cause the formation of a market environment that is conducive to speeding up technological innovation.
Thirdly,the appreciation of the RMB will benefit the people.On the one hand,it will make imported products relatively cheaper.It will also be cheaper for Chinese to travel abroad.This will increase consumption.On the other hand,it will push up the market price of domestic financial assets,changing the financial market structure.If other conditions don't change,Chinese people will feel richer as the value of their money grows and further stimulates domestic demand.Of greater strategic significance is the fact that the appreciation of the RMB will make the price Chinese labor price higher.
RMB appreciation reflects the success of Chinese economic development after reform and opening up.It is also an important turning point in China's social and economic situation.The downsides to RMB appreciation shouldn't be overemphasized.The fluctuation of the RMB is the result of changes to the current economic structure and will have an important impact on the economic structure of the future.Maintaining the status quo is short-sighted and will harm the long-term interests of China.The best choice is to speed up the transformation of the economic growth mode and adapt to the appreciation of RMB to make the most from the process.
By People's Daily Online; The author,Chen Feixiang,is the Director of the Economic and Financial Deparment of Tongji University.
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RMB Appreciation Positive for Economy,Trade
China's long-awaited but unexpected decision to appreciate its currency sent shock waves to the international financial market.
Economists hold that the new RMB rating system will have a positive effect on the country's economy in the long run.
The RMB yuan,which had been pegged to the US dollar for over a decade at a rate of one dollar for 8.27 yuan,began to be traded at 8.11 starting 19:00 Thursday,according to the announcement released by China's central bank,with pegging system being switched to refer to a basket of foreign currencies.
"The 2 percent appreciation of RMB may weaken exports and boost imports," Wang Zhao,a research fellow with State Council Development Research Center Marco-economy Department,said,"in other words,the net exports will see a decline."
However,the move helps China build a healthy and sustainable development structure.The export-oriented policy of RMB being pegged to the US dollar,which made made-in-China commodities less expensive,provoked a series of trade conflicts in the latest years."
Many overseas firms moved to China to take advantage of China's cheap labor force.The appreciation of RMB squeezes the profit margin of labor-intensive and heavily-polluted firms,Wang said.
"For example,some tennis rackets are made of carbonic material,which is heavy-polluted.The appreciation might force these companies to leave China," he said.
"According to the purchasing power parity evaluation,the RMB was really undervalued," said Zhao Yumin,a research fellow on the international market from the Ministry of Commerce."The appreciation pushes RMB closer to its real value."
"The key factor to a product is technology instead of foreign exchange rate," Zhao said," Some low-end producers will be washed out.However,the appreciation will not have much impact on high-end companies."
Foreign manufacturers whose products target China's market,such as Motorola,would not feel much pressure.Yet those targeting overseas market might need a second thought,Zhao said.
Tang Min,deputy resident representative of the Asia Development Bank's PRC Resident Mission,said the pegging system reform would have a limited effect on foreign trade in the short term.
"The reform indicated that China's foreign exchange system is developing towards a more flexible,mature,and market-oriented direction.Summing up the reform experiences of other developing countries,China should push for the reform slowly to fence off unexpected risks," Tang said.
Tang's remarks were echoed by Zhao Yumin."The appreciation and reform are a wise decision," she said,"first of all,the appreciation could help rub off trade conflict pressure from China's trade partners.Second,the modest movement of RMB will not result in big fluctuation in the financial market.Third,the pegging reform leaves enough space for the continuous reform on the yuan's rate."
"More importantly,referring to a basket of currencies can hedge off more financial risks than to a single currency," Zhao said.