Glamor Economics

Chapter 169

Chapter 21 Section 5 Is RMB Appreciation a Good Thing or a Bad Thing——Currency Appreciation

"Consumer Guide" reported:
Since our country implements the exchange rate system where the RMB is pegged to the US dollar, the RMB has been in a state of appreciation for a long time in the past 10 years. In 1996, the average exchange rate of RMB was 8.3143, and in 2003 it was 8.2770 (National Bureau of Statistics, 2004).Since 2001, the RMB exchange rate has been relatively stable at 3 for three consecutive years.Since 8.2770, the renminbi has once again faced appreciation pressure, and international calls for renminbi appreciation have become louder and louder. Many countries, led by the United States in particular, hope to force the renminbi to appreciate.People at all levels in the theoretical circles also believe that the appreciation of the renminbi is inevitable, and its magnitude is estimated to exceed double digits.

The appreciation of the renminbi actually refers to the increase in the ratio of the renminbi to foreign currencies.Here we must first understand the concept of exchange rate.An exchange rate refers to the price of one currency expressed in another currency.According to this principle, if the exchange rate of RMB to US dollar is 1:8, 1 US dollar can be exchanged for 8 yuan of RMB; when the exchange rate rises to 1:7, 1 US dollar can only be exchanged for 7 yuan of RMB.In this way, the RMB has appreciated relative to the US dollar.If you use RMB to buy American things at this time, you will spend less money than before.Because the RMB is more "valuable".

In 2008, Boss Lan from Fujian decided to buy a new imported car for himself—a Cadillac SRX that he had been paying attention to for a long time.When doing this business, Boss Lan was very careful. He said: "I browsed many foreign professional websites, and the price quoted by the dealer in the United States was 37140 US dollars. If converted at the previous exchange rate of 8.3, it would cost 308262 US dollars. RMB; but the exchange rate when I bought it was 7.35, and I only spent 272979 RMB, saving more than 35000.”

Boss Lan, who just got a new car, is very satisfied with the new car.He is going to buy a new car for his family after the RMB appreciates again.

Using this example, we can understand the meaning of RMB appreciation.At the same time, we have seen that the appreciation of the RMB has greatly improved the international purchasing power of the domestic people.For consumers like Boss Lan, buying foreign goods now is like getting a [-]-[-]% discount, which benefits the common people very much.

Similarly, for importers, it will be more convenient for them to purchase goods than before. Imported goods and imported raw materials will be cheaper, and some domestic processed products will also become cheaper.As a result, people's purchasing power increases, thereby stimulating domestic demand and promoting consumption.In addition, if someone wants to study abroad, the appreciation of the renminbi is also a very good opportunity.

Relevant statistics of study abroad consulting materials on Sina.com:

"In 2008, the average cost of studying in the United States was about 12 yuan per year, which was almost the same as going to countries such as Australia or Singapore, and gradually became more attractive to domestic consumers." Taking a bachelor’s degree as an example, the average cost of studying in the United States in 2008 was about 2006 yuan cheaper than in early 10.

It can be seen that these effects caused by the appreciation of the renminbi are closely related to daily life, so that ordinary people have a real feeling.Does the appreciation of the renminbi bring benefits?

Sohu Finance reported in 2008: Shengze Town, Jiangsu Province, originally one of the four major silk capitals in China, has tens of thousands of domestic and foreign leading production equipment, and the town produces 60 billion meters of various textiles every year.However, due to the appreciation of the renminbi, nearly hundreds of enterprises were shut down.According to relevant personnel of the Textile Association, the currently discontinued small and medium-sized enterprises account for about one-third of the total number of small and medium-sized enterprises.Sadly, textile enterprises in Wujiang are also facing the same problem.The appreciation of the renminbi has caused the profit margins of local enterprises to be greatly compressed.

According to the statistics of the China National Textile and Apparel Industry Association, in 2007 alone, the economic losses suffered by the national textile enterprises were more than 1500 billion yuan, far exceeding the profits obtained by the enterprises. 51% of the enterprises were on the verge of loss, and the situation of textile enterprises was worrying.

The effect of RMB appreciation cannot be summarized in terms of advantages or disadvantages.They are complementary, and neither can be avoided.Therefore, when someone one-sidedly proposes that the appreciation of the renminbi has improved our lives and is beneficial to my country's economic development, everyone may wish to calm down and think about whether the statement is accurate.It benefits importers, but hurts exporters and labor exporting groups.An appreciation of the renminbi will cause a huge blow to export trade, and if coupled with the financial crisis, it will cause serious unemployment.The low-cost advantage of my country's labor force has also been offset by the appreciation of the renminbi. Many workers cannot find jobs abroad, and labor export has been greatly affected.

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Positive Effects of Renminbi Appreciation
1.It is conducive to promoting the reform of the exchange rate system and even the financial system.

2.Conducive to solving the imbalance of foreign trade.Due to the implementation of a single exchange rate system pegged to the US dollar, my country's products have always maintained a cheap advantage, which can alleviate the contradiction of the imbalance of international payments to a certain extent.

3.It is conducive to reducing the price of imported commodities and the production cost of export enterprises mainly based on imported raw materials.

4.Conducive to reducing the cost of Chinese citizens traveling abroad.

5.It is conducive to prompting domestic enterprises to strive to improve the competitiveness of their products.Our company has occupied the international market with low prices for a long time, allowing foreign importers to benefit.If the price is raised after the appreciation, the market may be lost; if the price is not raised, the loss may be increased, so it can only increase productivity and technological content, reduce costs, improve quality, and enhance competitiveness.

6.It is conducive to reducing the demand for domestic housing purchases from foreign funds and reducing real estate bubbles.

Negative Effects of Renminbi Appreciation
1.It will reduce the profit margin of enterprises in a certain period of time, so that the competitiveness and share in the international market will decline, resulting in a decrease in exports.

2.It will intensify competition in some domestic areas.Some manufacturers of export products will join the ranks of domestic market competition, making the already highly competitive domestic market even more fierce.

3.It will cause relative overproduction in certain fields.For example, 40% to 60% of export commodities such as food, clothing, and stationery are transferred to the domestic market, which will inevitably cause an oversupply of products in a certain period of time.

4.Will intensify employment pressure, especially will cause many migrant workers to lose their jobs.

5.It will increase the cost of foreign investment in China, and the use of foreign capital may show a gradual decline.

6.It will lead to an increase in the spending of overseas tourists traveling in the mainland, which may make them travel to other countries or regions.

(End of this chapter)