With the rapid and stable development of my country’s economy and the acceleration of RMB appreciation, the issue of RMB exchange rate has also become a global hot topic. Understanding the reasons for the appreciation of the renminbi and its impact on my country’s economy will help the Chinese government and enterprises to seize the opportunity of renminbi appreciation, resolve financial risks, and promote further economic development.
What are the effects of RMB appreciation on China’s economy?
The positive impact of RMB appreciation:
- It is conducive to continuing to advance the reform of the exchange rate system and even the financial system.
- Conducive to solving the imbalance of foreign trade.
- It is conducive to lowering the price of imported goods, and can also reduce the production cost of export enterprises that mainly import raw materials.
- It is conducive to urging domestic enterprises to strive to improve the competitiveness of their products.
- It is helpful to reduce the cost of Chinese citizens’ outbound travel and encourage more citizens to go abroad.
Negative effects of RMB appreciation:
- It will have an impact on my country’s export enterprises, especially labor-intensive enterprises.
- It is not conducive to my country’s introduction of overseas direct investment.
- Increase domestic employment pressure.
- Affect the stability of the financial market.
- The huge foreign exchange reserves will face the threat of shrinking.
The impact of RMB appreciation on the real estate industry
Currency appreciation means an increase in the value of assets denominated in RMB. Therefore, real estate as real estate will appreciate correspondingly with the appreciation of RMB. It is expected that overseas hot money with RMB appreciation will choose Chinese real estate with value preservation and appreciation as an important allocation asset under the premise of free capital flow. With the continuous growth of my country’s per capita GDP, the continuous advancement of urbanization, the reform of real estate commercialization and limited real estate supply and other factors, my country’s housing prices have continued to rise for 10 years, providing conditions for substantial appreciation after foreign capital inflows. The dual rise of the RMB exchange rate and the expected housing price has caused a large amount of foreign investment to pour into my country’s real estate. The motive of foreign investment in buying houses is merely speculation. They earn short-term arbitrage of housing price differences. Due to the limited supply and endless demand in the real estate industry, there is a contradiction in housing prices. Rising, consumers who really need housing cannot afford to pay high prices. For my country, after the appreciation of the renminbi, foreign capital enters the domestic real estate market through real estate development, direct purchase of domestic real estate development enterprise financing, and even false import and export. If it cannot better control the huge international domestic capital impact, it will give The real estate market has brought huge disasters.
The impact of RMB appreciation on the securities market
The continuously appreciating renminbi may become an unstable factor affecting the stock market. In the stock market, the exchange rate is highly positively correlated: domestic currency appreciation-foreign capital inflows-securities prices rise (especially stock prices)-investment income has risen sharply, attracting more foreign capital inflows-increasing appreciation pressure , Which will cause the RMB exchange rate to rise continuously. In a short period of time, this will form good news for the securities market, and a large amount of funds will flow into the securities market, which will drive stock prices higher. However, in the long run, when the expectation of RMB appreciation is completely released and the capital market bubble is severe, these “hot money” will soon cash in stocks and return capital, leading to a sharp decline in the stock market and heavy losses for domestic investors. Bringing huge disasters to the Chinese securities market.
The impact of RMB appreciation on investment
The appreciation of the renminbi under the influence of foreign capital. First, after the appreciation of the renminbi, the amount of foreign investment funds will be reduced after being converted into renminbi. This will increase the cost of foreign investment in Chinese industries and will inevitably lead to a decline in the competitiveness of foreign companies. Therefore, after the appreciation of the renminbi, it may be possible Leading foreign businessmen to reduce their direct investment in China. Moreover, due to the appreciation of the renminbi, the renminbi has become more valuable, which will inevitably lead to foreign capital flowing into China through capital markets such as the foreign exchange market and stocks, thereby increasing the funds for investing in China through indirect means.
RMB appreciation affects investment by mainland enterprises
After the RMB appreciates, it can be exchanged for more U.S. dollars and other currencies, which is bound to increase the competitiveness of domestic companies to invest overseas. Therefore, it is foreseeable that domestic companies will also earn more foreign exchange from overseas. Through the appreciation of the renminbi, more domestic enterprises can purchase more advanced foreign equipment and rapidly enhance the competitiveness of domestic industries. Adjusting the domestic economic structure and promoting economic development may change the current situation of domestic companies relying on cheap labor to compete, and enable Chinese companies to obtain higher profit margins.
Does RMB appreciation benefit imports or exports?
Does the appreciation of the renminbi benefit imports or exports? why
RMB appreciation is beneficial to imports
Reason: The appreciation of the renminbi will increase the purchasing power of the renminbi. You can buy more goods or commodities with the same total budget as before. For example, in the international market, one yuan of renminbi can only buy one unit of goods. After the renminbi appreciates, you can buy more units of goods.
Especially in companies that rely on imported raw materials for production. The appreciation of the renminbi can greatly reduce the cost of such companies in the production of raw materials, reduce budgets, and obtain more raw materials with less funds. In this way, the surplus value created will increase, and the corporate profits will be increased. The growth will form a virtuous circle, which is conducive to the long-term development of the enterprise, and the growth of the enterprise will also drive the improvement of people’s living standards.
The balance of payments status is the dominant factor in determining exchange rate trends. Under normal circumstances, the balance of payments deficit indicates that the supply of foreign exchange exceeds demand, which will cause the depreciation of the domestic currency and the appreciation of foreign currencies; conversely, the surplus of the balance of payments will cause the appreciation of the domestic currency and the depreciation of foreign currencies.
The positive impact of RMB appreciation
- Expand domestic consumers’ demand for imported products, so that they can get more benefits.
- Reduce the cost burden of imported energy and raw materials. my country is a resource-poor country. Under the situation of rising prices of international energy and raw materials, domestic enterprises are bound to bear more and more cost burdens. In 2004, the average price of imported refined oil in my country rose by 30.8% compared with 2003, steel rose by 43.7%, copper rose by 50.4%, and iron ore more than doubled.
- Use the “reverse force mechanism” to promote the adjustment of my country’s industrial structure and improve my country’s position in the international division of labor. For a long time, my country has implemented an export-oriented strategy relying on the expansion of the number of cheap labor-intensive products, which has prevented the export structure from being optimized for a long time, and my country has always played the role of “world wage earners” in the international division of labor.