On the issue of RMB appreciation

1. Advantages and Disadvantages of RMB Appreciation

Four Major Benefits

First, expand domestic consumers’ demand for imported products so that they can get more benefits . The most obvious change brought about by the appreciation of the RMB to domestic consumers is that the RMB in their hands becomes “more valuable”. If you study or travel abroad, you will spend less money than before; in other words, with the same money, you will be able to do more things than before. If you buy imported cars or other imported products, you will find that their prices have become "cheaper", thus providing more benefits to the people.

Second, reduce the cost burden of imported energy and raw materials. Our country is a resource-scarce country. As international energy and raw material prices continue to rise, domestic enterprises are bound to bear an increasingly heavy cost burden. In 2004, the average price of refined oil imported into my country increased by 30.8% compared with 2003, steel increased by 43.7%, copper increased by 50.4%, and iron ore more than doubled. The rise in the price of imported energy and raw materials will not only raise the price of the entire basic production materials, but also eat up the profits of enterprises in the middle and lower reaches of the industrial chain, causing their profitability to decrease or even cause losses. If the RMB appreciates to a reasonable level, it will greatly reduce my country's burden on imported energy and raw materials, allowing domestic enterprises to reduce costs and enhance competitiveness.

Third, it is conducive to promoting the adjustment of my country's industrial structure and improving my country's position in the international division of labor. For a long time, our country has relied on the expansion of the quantity of cheap labor-intensive products to implement an export-oriented strategy, which has prevented the export structure from being optimized for a long time, making our country play the role of "the world's wage earner" in the international division of labor. Appropriate appreciation of the RMB will help promote export enterprises to improve their technical level and improve product quality, thereby promoting my country's industrial structure adjustment and improving my country's position in the international division of labor.

Fourth, it will help ease the relationship between my country and its major trading partners. In view of the rapid development of my country's export trade and the increasing trade surplus, my country's major trading partners have repeatedly requested the appreciation of the RMB. To this, simply saying "no" may seem encouraging, but it actually won't help. Because this will continue to worsen the relationship between our country and them and set up obstacles for our country's foreign economic and trade development. In recent years, the sharp increase in anti-dumping cases against China is a very convincing evidence. Appropriate appreciation of the RMB will not only help ease the relationship between my country and its major trading partners and reduce economic and trade disputes, but also establish a good international image of my country as a big country.

Five major disadvantages

First, it will have an impact on my country’s export enterprises, especially labor-intensive enterprises. In the international market, the export prices of my country's products, especially labor-intensive products, are far lower than the prices of similar products in other countries. The reasons are: first, my country's labor force is cheap, and second, due to fierce domestic competition, export companies are willing to spend money and compete to adopt low-price sales strategies. Once the RMB appreciates, in order to maintain the same bottom line of RMB prices, the prices of my country's export products expressed in foreign currencies will increase, which will weaken their price competitiveness; and if the foreign currency prices of export products remain unchanged, export enterprises will inevitably be squeezed. profit margins, which cannot but have an impact on export enterprises, especially labor-intensive enterprises.

Second, it is not conducive to my country’s introduction of overseas direct investment. Our country is the country that introduces the most overseas direct investment in the world. At present, foreign-invested enterprises are playing an increasingly obvious role in various fields such as industry, agriculture, and service industries in our country. They are instrumental in promoting technological progress, increasing labor employment, expanding exports, and thus promoting the development of the entire nation. Economic development has an impact that cannot be ignored. Although the appreciation of the RMB will not have a substantial impact on foreign investors who have already invested in China, it will have an adverse impact on foreign investors who are about to invest in China because it will increase their investment costs. In this case, they may redirect investment to other developing countries.

Third, increase domestic employment pressure. The impact of RMB appreciation on export enterprises and overseas direct investment will ultimately be reflected in employment. Because most of my country's export products are labor-intensive products, any obstruction in exports will inevitably increase employment pressure; foreign-invested enterprises are one of the sectors that provide the largest number of new jobs, and the slowdown in foreign investment growth will make the domestic employment situation even more severe. .

Fourth, it affects the stability of the financial market. If the RMB appreciates, a large number of overseas short-term speculative funds will take advantage of the opportunity and speculate on the RMB exchange rate.

As China's financial market is still underdeveloped, this could easily trigger a financial and currency crisis. In addition, the appreciation of the RMB will further increase the actual amount of banks' existing non-performing assets measured in US dollars, which is not conducive to the reform of the entire banking industry and the adjustment of liability structure. Fifth, huge foreign exchange reserves will face the threat of shrinking. At present, China's foreign exchange reserves are as high as 2,454.3 billion U.S. dollars, ranking first in the world. Sufficient foreign exchange reserves are an important symbol of our country's growing economic strength and increasing level of opening up to the outside world. They are also a strong guarantee for us to promote domestic economic development and participate in foreign economic activities. However, once the RMB appreciates, the huge foreign exchange reserves will face the threat of shrinking. If the RMB appreciates by 10% against major convertible currencies such as the US dollar, my country's foreign exchange reserves will shrink by 10%. This is a serious problem we have to face.

2. The RMB is not a world currency and cannot be circulated around the world. Since we are purchasing U.S. Treasury bonds, we must use U.S. dollars to increase foreign exchange reserves.

3. In fact, for ordinary Chinese people, the appreciation of the RMB is beneficial. Our money is more valuable and it is cheaper to buy foreign goods; but it will definitely have an impact on our country’s employment, as mentioned above .