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RMB Will Return To The "7" Era. Strong Appreciation Will Slow Down.

2008/4/22 15:55:00 38

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RMB Will Return To The "7" Era Strong Appreciation Will Slow Down.

According to the latest exchange rate released by China foreign exchange trading center, the interbank foreign exchange market in April 21st, the central parity of the US dollar against the RMB exchange rate was 7.0078 yuan, and returned to the "head word 7" interval for second consecutive working days.

Experts believe that, in the new four big domestic and international backgrounds, the strong appreciation of the renminbi has slowed down since the first quarter. The main task at this stage is to effectively curb hot money and prevent unemployment caused by export damage.

Background 1: balance of financial and trade under the system of large ministries and commissions

A macroeconomic analyst at Shanghai Yi Fan consulting company believes that the background of slowing down the appreciation of the renminbi is China's implementation of the ministries system.

In the previous round of appreciation of the renminbi, the people's Bank of China and the Ministry of Commerce and commerce, which are in charge of the appreciation of the renminbi, will inevitably encounter "disputes" under different purposes. One department must push forward the exchange rate reform, and the other sector's main task is, of course, to promote exports.

Under the background of large ministries and commissions, the current round of appreciation is mainly the result of coordination between the departments directly under the leadership of Vice Premier Wang Qishan, who is in charge of Finance and commerce. The balance between appreciation and trade is the greatest requirement for the appreciation of the state and the people.

In fact, since 2005, the RMB has appreciated by 18%.

China's exports, especially some export-oriented provinces and export-oriented enterprises, are under great pressure. Therefore, as the competent authorities, they have to consider how to protect the interests of China's exports while appreciating the renminbi.

Background Two: appreciation is not enough to prevent inflation.

SumeiTang, director of China's macroeconomic research team, Moodie, a well-known rating agency, pointed out that the purpose of RMB appreciation is clear, mainly in order to curb inflation.

According to Dr. SumeiTang, the price of domestic inflation originated from the prices of commodities such as pork, grain and vegetables. The large scale snowstorm at the beginning of the year intensified this trend, but the essence of inflation was too much hot money flowing into the country.

Adopting the way of RMB appreciation can reduce the trade surplus and foreign exchange reserves, thereby reducing the inflow of foreign capital. This should be a feasible method. But because of the global recession caused by the US subprime debt crisis, and the United States adopting a large and continuous interest rate cut to try to save the economy, it makes the speculative hot money empty, resulting in more and more hot money flowing into the country to carry out arbitrage activities, which also aggravated domestic inflation.

Dr SumeiTang said that in terms of figures, the growth rate of CPI in March this year was 8.3%, a slight decrease compared with the 8.7% increase in February, while the balance of foreign exchange reserves as at the end of March was 16822 billion dollars, but the total amount did not decrease, but it increased by 153 billion 900 million US dollars over the previous year.

In this sense, inflation has not been achieved through the appreciation of the renminbi.

Background Three: the price of RMB appreciation is expensive

Dr. SumeiTang said it would be costly to use inflation to curb inflation.

On the one hand, China's foreign exchange reserves will continue to depreciate, for example, when the value of RMB rises by 1%, foreign exchange reserves will depreciate US $16 billion 822 million, and the wealth of the domestic people will also evaporate. On the other hand, domestic commodity exports have also been greatly affected, and many export oriented enterprises are in urgent need of bankruptcy.

The latest figures show that domestic import and export volume increased by 24.6% in the first quarter compared with the same period last year, but the trade surplus decreased by 4 billion 900 million US dollars compared to the same period last year, only 41 billion 400 million US dollars. In the first stage of the 103rd China Import and export fair, which was just closed, the trade value was bleak and the turnover of various export products decreased compared with the previous one.

Dr SumeiTang said that the decrease in exports was mainly due to the adjustment of domestic export policies and the appreciation of the renminbi. With the further recession of the US economy caused by the subprime debt crisis, exports will face more difficulties.

Background Four: the risk of hot money is greater.

Dr SumeiTang also believes that the loss of foreign exchange reserves and exports caused by the appreciation of the renminbi can be calculated, but the invisible risk caused by the appreciation of the renminbi is difficult to estimate.

In the view of some domestic experts, because of the appreciation of the renminbi, foreign investment has moved out, export enterprises have gone bankrupt, and the number of unemployed people has increased. This is another time bomb outside financial risk.

From the data, the current enthusiasm for hot money pouring into the country is increasing.

In the first quarter of this year, China's foreign exchange reserves continued to grow rapidly, with an increase of 39.9%.

In particular, the focus of new foreign exchange reserves has shifted from trade surplus to "other foreign exchange inflows".

For example, the "foreign exchange inflow" in February has a ratio of 73% in foreign exchange reserves, which is the highest in history.

Dr SumeiTang said that the appreciation of the renminbi could have suppressed the influx of hot money, because it increased the cost of foreign capital investment in China, but now it has become more and more popular through various channels, especially the hot money of speculation. The main reason is that it is profitable in China.

In fact, some experts have said that according to the rate of RMB appreciation to the US dollar in the first quarter of 4%, plus the interest rate difference between banks between China and the United States, the annual rate of return of all kinds of speculative hot money in China is 16%~20%.

And most of these hot money into the stock market and the housing market for speculation is already an open secret.

Hot money can not only benefit from the appreciation of the renminbi.