How Much More Can The Yuan Go Up?

In September 26th, the China Central Investment and Trade Fair was held on schedule. There seemed to be a sense of loss behind the cheerful atmosphere. In particular, for central export producers, what they most want to know is the future trend of the renminbi, but no one can give a clear explanation.

In their conversation with the writer, the most talked about is exchange rate Questions. I understand their concerns. If the renminbi appreciates significantly, they will be unhappy. Their pressure stems from two aspects: one is the eastern industrial transfer, increasing their competition, they want to integrate, but do not know how to integrate; the second is the appreciation of the renminbi, they do not know how much to go up, they do not know whether it can continue to work.

about Renminbi appreciation There are two kinds of negative consequences, one is deflation, and the other is liquidity, and the two is export trade. In fact, for China, the financial risk is not big, because China's financial system is dominated by the state. If there is an accident, such as a certain degree of liquidity, if the central bank helps to provide a little liquidity, even if it promises to pay, the public will immediately restore confidence.

China's risks lie not in finance but in industrial risks, especially after the banking reform. Why do we say so? The reason is very simple. China is an industrial oriented country and a processing factory of the world's consumer goods. No matter why, once the industry is being harmed by a large area, it will inevitably bring about a fatal blow to finance and even the entire national economy. Because the traditional real economy is bound to take bank loans as the main way of financing. If there is a big problem in traditional industries, the financial industry, especially the banking industry, will inevitably be robbed.

Now, aim at China industry The pressure has come, the pressure is RMB appreciation. Apart from the US and Europe, in fact, all countries that have trade with China may not speak, but they all want to see the appreciation of the renminbi, which is good for their exports. This is like the negotiation of China's accession to the WTO. Before that, big powers are talking with China, while small countries are just waiting. Because the conditions reached by big powers and China are also applicable to small countries, small countries are waiting to eat "melon falls".

The author analyzes that the pressure on the renminbi is no less than that before 2005, and may even be heavier. Why? In 2005, the United States was trying to increase domestic consumption, so it was very worried about inflation and did not want to see the RMB appreciation too fast, because that would increase the cost of domestic consumer goods import, increase the price of domestic consumer goods and stimulate inflation.

But now it is different. Now the United States is anxious to increase the price of its own consumer goods to avoid deflation. And pushing up the RMB exchange rate is clearly one of the US's dodging schemes for deflation.

In other words, Europe and Japan also have the problem of preventing deflation. In addition, all countries hope that China will buy more of its goods, so the issue of RMB appreciation will easily become a target of public criticism. The United States and Europe will be more unscrupulous about this issue, because in addition to China, there is no international opposition force, which is simpler than the US forced yen appreciation. In those days, because Japan had a large number of Japanese yen loans abroad, forcing the yen to appreciate would increase the debt pressure of the Japanese debtor countries, but there is no such problem in China.

This is a severe test of the Chinese government. How to resolve such a crisis requires great wisdom. It is feasible to: do you not want me to import more? Well, I will import more deficits at a time, in essence, to spare foreign exchange reserves to stabilize the exchange rate. But if we spend our foreign exchange reserves and turn us dollar debt into cash, we must sell US bonds. China can ask the US for this price and reduce the pressure of RMB appreciation.