RMB Less Than 6.9 Yuan, Wenzhou Leather Industry Is Difficult To Continue

Yesterday (17), the central parity of RMB against the US dollar broke 6.9, at 6.8919.

Since the reform (including the day), the appreciation of RMB against the US dollar has also exceeded 20% for the first time, reaching 20.09%.

The road of appreciation in the past three years has strengthened China's ability to resist inflation and financial crisis, and has also stimulated the rapid inflow of hot money, and has brought some impact to some export enterprises.

Observers here believe that appreciation is not the ultimate goal of exchange rate reform. The direction of future exchange rate reform should be to continue to enhance RMB exchange rate flexibility so as to provide a strong guarantee for economic and financial stability and resist financial crisis.

Or evade the financial crisis again.

Recently, Vietnam's financial turmoil has caused the Asian economies to be highly vigilant.

The Vietnamese government lowered the Dong Dong exchange rate at 2% for one time. In May, the currencies of many Asian countries depreciated significantly against the US dollar. The central banks of South Korea, India, Philippines and other countries were forced to sell the US dollar to intervene in the foreign exchange market.

Recall that the depreciation of the currency led by the Thai baht 10 years ago triggered a massive withdrawal of capital from the Southeast Asian market, and worries over the outbreak of the financial crisis shrouded the whole of Asia.

In a panic, the renminbi has once again become the only strong Asian currency.

Since the two quarter, the RMB has appreciated by 1.8% against the US dollar, and the appreciation rate of RMB is the highest among the 10 most liquid currencies in Asia except Japan.

The exchange rate of RMB against the US dollar rose from 1:8.2765 before the reform to 20.09% yesterday.

The yuan has appreciated 5.99% against the US dollar this year.

The steady rise of the RMB exchange rate is an important guarantee to prevent the flow of hot money and foreign exchange funds. It is also one of the reasons why China is not likely to have a financial crisis.

The RMB is still on the rise, the economic development structure is more healthy and reasonable, and China's economic competitiveness continues to be optimistic.

Some scholars have pointed out that the outbreak of Vietnam's financial turmoil has proved that long-term artificially lowering the exchange rate is not conducive to economic and financial security and stability.

In the first two years when Vietnam's local currency exchange rate was obviously undervalued, Vietnam did not decisively revalue. Instead, it adopted a large number of measures to offset foreign exchange appreciation pressure, resulting in excess liquidity and eventually inflation.

In view of this, the reform of exchange rate formation mechanism opened by China in July 2005 may help China to avoid similar financial turmoil to a certain extent.

The external factors leading to Vietnam's financial turmoil are the continuation of the subprime crisis and the global inflation risk caused by the depreciation of the US dollar.

In the second half of last year, the outbreak of the subprime crisis accelerated the depreciation of the US dollar, thus driving up the price of oil, grain and raw materials all over the world and bringing serious threat of imported inflation to Vietnam and other emerging market countries.

In the second half of last year, China began to pay attention to the effect of appreciation on the suppression of imported inflation. Taking the policy of volume tightening and interest rate increase, the initiative to accelerate the appreciation rate has played a certain role in easing domestic inflation pressure.

The appreciation may reduce the risk of China's outburst of inflation and financial crisis.

Financial risks should not be ignored.

On the eve of the fourth Sino US strategic economic dialogue, some Western officials including the US Treasury Secretary Paulson insisted on the consistent view that although they noticed that the appreciation of the RMB against the US dollar had reached 20%, they believed that the RMB should continue to appreciate.

The game between the RMB and the US dollar has lasted for nearly three years. The motive of the us to exert pressure on the renminbi is to reduce the US trade deficit with China. The root of China's allowing the appreciation of the renminbi is to reduce liquidity pressure and adjust the structure of economic growth.

How should we choose RMB?

With the appreciation of RMB against the US dollar at 20%, the advantages and disadvantages of the appreciation have gradually become clearer.

Before the reform, some scholars expect the RMB to appreciate 10% against the US dollar, and a large number of export enterprises will go bankrupt.

At present, China's foreign trade industry has obviously exceeded its expectation of appreciation. China's trade surplus in May still exceeds 20 billion dollars.

However, what can not be avoided is that after 20% appreciation has eroded profits, some export enterprises are already standing on the line of life and death.

The growth of processing trade, which accounted for half of the surplus, has slowed down significantly since the beginning of this year.

The profit margins of many textile enterprises in the southeast coast have dropped to below 3%.

Once the largest leather industry in the country is difficult to continue, Wenzhou is now heavily in the process of coal mining.

What is even more worrying is that the unilateral appreciation anticipates a lot of "hot money" to covet China's investment paradise.

In the first 4 months of this year, foreign exchange reserves increased by US $228 billion 400 million, and foreign exchange inflows exceeded US $130 billion from other sources of foreign exchange reserve, surplus and FDI projections.

Despite the slow growth of the surplus this year, there is another growing trend that foreign exchange inflows from other channels are gradually replacing the trade surplus, becoming a new channel for foreign exchange inflows and continuing to import liquidity into the country.

China's broad money supply M2 unexpectedly rebounded sharply in May, an increase of 16.94% from 18.07% in April to a new high of 4 months. This is a new hidden danger for high inflation in the future.

The Central Bank of China faces greater pressure on monetary regulation.

In addition, the influx of hot money has also increased the risk of the future financial crisis.

Last year, China's stock market went up all the way. "Hot money" mainly went to the stock market and real estate and pushed up asset prices.

This year, the stock market has plummeted. Under the dual stimulation of higher interest rates and faster appreciation, more "hot money" may be "living in seclusion" in banks, enjoying more than 10% of annual risk free benefits.

However, once the RMB revaluation is over and the expected appreciation of the market comes to an end, these "hot money" may not hesitate to withdraw from the Chinese market.

The surge of "hot money" has aggravated the shock of China's A share market, the real estate market and the financial system.

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