Us: The RMB Exchange Rate Is Very Reasonable.

< p > the World Bank (market area) released the latest purchasing power parity (PPP) GDP data in April 30th.

The Pedersen Institute, the top think tank in the US, says this series of data shows that the RMB exchange rate has not been underestimated or even overestimated.

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< p > we have an astonishing answer: maybe not at all.

We can confidently say that the valuation of the renminbi is not fair now.

In 2005, the valuation of the renminbi was undervalued by 30%, and the renminbi began to appreciate sharply thereafter.

This change marks the end of China's economic strategy era, which is aimed at artificially controlling the value of the renminbi and adopting mercantilism (relying on exports to increase national wealth).

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< p > the logic of using the PPP method is based on a simple price income positive correlation, the so-called Lhasa Samuelson effect, that is, for poor countries, the price of non trade products and services will be low, so the overall price level is also low.

In this case, social resources flow into the tradable sector, so the low price level will also be reflected in the low level of exchange rate.

This relationship is so stable that this theory provides a benchmark: we can deduce price level and balanced exchange rate at a fixed level of income.

Below this exchange rate is called underestimation, while vice versa.

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< p > in order to prove our point of view, we define the benchmark exchange rate in two ways: assuming that the per capita < a href= "http://www.91se91.com/news/index_c.asp" > GDP < /a > has a linear relationship with the price, using linear regression; assuming that the poorer countries and < a href= "http://www.91se91.com/news/index_c.asp" > emerging markets < /a > national income and price relations are weak, and use the two regression.

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< p > we used two kinds of economic samples, and questioned the two models and two samples (linear and two times) for four groups (2*2).

Because inherent errors are unavoidable, trend is more important than data for this group of experiments.

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< p > from the result, for China, the renminbi only underestimated slightly in 2011, about 1.7%.

If the two model is adopted, it even overestimates.

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< p > if the same method is used in 2005, the valuation of currencies is undervalued by 28%.

In other words, China's current account surplus is equivalent to 6% of the total GDP in 2005, up to 10.1% in 2011, and the decline in 2011 to 1.9% is indeed consistent with the actual appreciation of 27% of the relative benchmark price.

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< p > > a href= "http://www.91se91.com/news/index_c.asp" > ICP < /a > (World Bank International Comparison plan, PPP GDP compilation organization) data is based on 2011.

However, we can still use the data in 2011 to estimate the valuation of 2014 RMB.

From the end of 2011 to the end of 3 2014, China's per capita GDP grew by 13.2% faster than that of the United States. In turn, the RMB should appreciate 3.2% against the US dollar.

However, according to the bank for International Settlements (BIS), the value of the yuan rose against the US dollar by about 7% from the end of 2011 to March 2014, which means that the remaining 1.7% overestimate by 2011 was completely covered.

So the valuation of the renminbi in 2014 is very fair.

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< p > this estimate is of historical significance. As China has always insisted on the exchange rate policy stance and has constantly used large-scale intervention to promote the depreciation of the RMB, China will abandon the export oriented mercantilism development model on the basis of fair value.

The implication of our estimate is that while macroeconomic aggregate (such as the current account deficit) continues to develop in the right direction, China will also be complacent in its economic restructuring.

In other words, China's economy is cautiously optimistic. With the underlying problems being solved, the imbalance will not happen everywhere.

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P, the end of China's mercantilism and the recovery of the rest of the world, we can wait and see.

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