Money for life guide

    RMB appreciation on China’s export growth, the negative impact may be exaggerated. As is the trend of RMB exchange rate, exchange rates move so the sooner, the Chinese government’s policy space, the greater
    In the global economy from the financial crisis in the sequential recovery in the context of the RMB exchange rate once again highlighted reflects the global power in economic and political issues of the repeated game, the market appreciation of the RMB timing is also expected in polarization, China faces significant monetary policy choice.

    Face of external pressure

    The reason why the U.S. restart the RMB exchange rate disputes, has both economic and political reasons.

Economic level, the consumption and investment under the premise of weak growth, while economic growth and control of the two goals of the current account deficit is the best means to stimulate net exports; the political level, the unemployment rate is high and mid-term elections approaching in the background, pick dispute since the RMB exchange rate will help to win votes.

From the European Union’s trade protectionism and the RMB revaluation pressure, or will come back, and as the largest beneficiary of RMB appreciation, emerging market countries such as the G20 meeting possible within the framework of co-developed countries and other multilateral pressure on the yuan.

Bergsten Peterson Institute for International Economics claims, the United States should try to put Sino-US bilateral exchange rate between the multilateral disputes.

Specific strategies in three steps: first, the Ministry of Finance in mid-April report will be defined as a currency manipulator in China; second, and emerging market countries in the EU’s support for IMF set up a special resolution and the formation of the Consultative Group, to force China to quickly agree on the appreciation of the renminbi; Third, countries requested WTO dispute settlement panel set up, determining that China violated WTO obligations due under the Constitution and to propose corrective measures.

External pressure to revalue the yuan, making Chinese government on this issue into a dilemma. On the one hand, if the external pressure for renminbi appreciation, inevitably succumb to outside pressures too; on the other hand, if the collective demands from the major countries ignored, could undermine China’s attempts to establish the reputation of responsible power.

Greater appreciation of the benefits

Appreciation of the RMB against the major reasons include: RMB appreciation China’s export growth would have a negative impact, affecting economic growth and employment; if laissez-faire in the United States under the pressure of sharp appreciation of the RMB against the U.S. dollar may lead to the Plaza Accord repeat after Japan’s bubble economy.

RMB appreciation on China’s export growth, the negative impact may be exaggerated. First, the CASS Institute of World Economics and Politics, Yao Chi Chung and others study found that short-term income elasticity of China’s exports is about 2.34, while the short-term price elasticity of about -0.65. This means that the decision to the strength of China’s exports outside the main factor is the need to change, rather than the RMB exchange rate.

China’s trade structure, processing trade accounts for half. RMB appreciation in raising the final price of export products, but also reduce the import cost of raw materials and intermediate products. This means that processing trade enterprises can significantly compress the premise of profit, through price cuts to deal with the appreciation.

According to Ha Jiming, China International Capital Corporation and others found that 25 industries in China, if the revaluation of 5%, only five industry profit margins will decline, while the profit margin of 19 industries will be on the rise.

Even China’s clothing and shoes and other low value-added industries in the 2006-2008 period the RMB exchange rate appreciation, which in the United States by increasing market share is not reduced, indicating that China’s export industry on the ability to adjust the yuan appreciation may be significantly underestimated.

The lessons of the Japanese bubble economy, to a large extent there are misreading. Takatoshi Ito, an economics professor at the University of Tokyo that the Japanese asset price bubble which is not caused by the sharp appreciation of the yen.

Sharp appreciation of the yen against the background for fear of yen appreciation on the negative impact of domestic aggregate demand, the Japanese government is lenient on long-term implementation of monetary policy, this is leading to a huge Japanese property and stock market bubble of the reasons. Therefore, even if the RMB exchange rate pegged to the dollar, if the Chinese government’s monetary policy out of control, China’s stock market and property market bubbles also generate enormous.

The main reason for the yuan appreciation are: RMB appreciation can guide the flow of resources from manufacturing services, and then change the current over-development of the manufacturing sector, while the lack of structural imbalance service industry; can improve China’s terms of trade, curbing international energy and bulk commodity prices resulting from imported inflation pressure; could weaken China’s international balance of payments surplus of pattern pairs, curb further growth in foreign exchange reserves, external liquidity to ease the influx of Chinese prices and the impact of asset prices.

With China’s strong economic recovery, maintain the existing exchange rate mechanism of defects becoming increasingly prominent.

First, while the U.S. dollar to maintain the RMB exchange rate stability, but this is the RMB against the euro, the yen and other currencies in emerging market countries, the cost of exchange rate fluctuations. Taking into account the EU has replaced the U.S. as China’s largest export market, even from the stability of China’s exports of maintaining the currency to the dollar’s exchange rate mechanism is probably not the best.

Second, the relative change in the exchange rate between the two countries, two economies should be to determine the relative fundamentals. Labor productivity in the long run, China’s labor productivity growth rate significantly higher than the United States. From short-term current account balance, fiscal balance and debt balances, China persistent U.S. current-account surplus, the U.S. fiscal deficit and government debt relative size of the absolute scale and higher than China.

This means that the future revaluation of the yuan against the U.S. dollar is the trend. To a relative strength of the increasing strength of the currency to keep a close eye keep a relative attenuation of the currency, which in itself is not conducive to the further internationalization of the former.

Once again, staring at U.S. dollar exchange rate means that the Chinese government to implement an independent monetary policy difficult, but was forced into the U.S. monetary policy. China’s economic cycles and economic structures there are significant differences with the United States. Lack of independence of monetary policy, will make the Chinese government was forced to remain at the loose monetary policy, long-term conditions, which will undoubtedly contribute to future inflation and the risk of asset price bubble.

Restore exchange rate flexibility

The need for revaluation of internal and external pressure, China should choose?

First of all should be clear, the RMB exchange rate policy is one of China’s macroeconomic policies should be decided in line with the principle of maximizing national interests of the RMB exchange rate in the future. RMB exchange rate to changes and external pressure should be separated from the strength of the problem.

Controllable rate of RMB appreciation on export growth and employment impact is limited, and the flexibility of RMB exchange rate consistent with long-term interests of China. The most likely option is to increase the yuan’s daily trading range, the yuan’s gradual appreciation control.

To avoid the gradual appreciation of the strategy caused a lot of hot money inflows, the Chinese government on the one hand to exert greater control over capital inflows and increase the cost of hot money inflows; the other hand, the level of domestic credit control, the manner by increasing the supply of assets at a reasonable price range, reducing the incentive of hot money inflows.

China should strive, through bilateral and multilateral channels, reasonable and favorable, with the developed countries and emerging market countries to communicate, in order to protect the global trend of free trade, and promote further economic recovery in the world.

As is the trend of RMB exchange rate, exchange rates move so the sooner, the Chinese government’s policy space, the greater

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