人民币合理汇率(英文版)

An institutional-based view of RMB exchange rate--- What is the ideal RMB exchange rate for ChinaAbstractBy the end of 2007, the GDP of China has increased for 15 times compared to 19781which was the year China set up the national plan of reform and opening up. China has experienced an average annual 9.89% GDP growth rate from 1978 to 20112. It is an absolute maverick of world economy, contributing various goods and massive investing opportunities. However, doubts and panics also arose at the same time. The world is accusing China of manipulating RMB for under-evaluation, while China is arguing that RMB rate is a purely independent domestic affair, and it would definitely be a lose-lose strategy by pressuring and framing RMB.When American politicians gave the public speech on the threats to American employment rate brought by the under-evaluation of RMB, what we found was that RMB has appreciated by 25% since 20053 instead, and this kind of improvement did not help with the US unemployment rate at all, a deteriorating situation of unemployment still exists all the way until now.We will review four diverse areas of substantive research: 1) appreciation pressure from the United States; 2)China’s suffering of sudden appreciation of RMB; 3) China’s thoughts on RMB exchange rate; and 4) the predictive RMB appreciation rate. Overall, we will figure out the current situation that RMB is facing, and the ideal RMB appreciation rate for China’s best interests.1/20081217/n261253088.shtml2/view/8cfd892a0066f5335a81212f.html3/2011-10/13/content_2778080.htmIntroductionIs China really manipulating RMB exchange rate? Why does not everyone talk about countries’monetary policy instead? Who is beneficial from RMB’s under-evaluation and who is suffering? What are the effects on world economy and China economy if RMB appreciation rate is accelerated?China has grown at a double digits rate for last decade and is expected to increase at the rate of 8% in next five years according to the latest Government Work Report from Premier Wen Jiabao4, while US GDP growth rate was predicted to increase by 2.1%by IMF5, with foreseeable uncertainties and risk. However, we need to draw attention that China is only a developing country which has the fastest growing rate while US is the largest developed country, therefore, neither their GDP growth rate nor the economy scale is comparable since they are in totally different conditions. But for some reasons, people would like to compare these two countries because of US’s declining dominance situation and China’s arising influence in the global affairs. However, although America is suffering from its financial crisis, it still has many obvious advantages on technology, financing, political influence, capital marketover China.However, except from the US, there is almost no other country interested in blaming China for manipulating the RMB,they seem not to have any incentive to do so.Then why did US accuse China of manipulating exchange rate despite the fact that China does not have any solid advantages? The direct reason is because China has a significant amount of trade surplus over US which is still increasing month by month.If you visit 4/cj/2012/03-05/3718411.shtml5/v1/news.php?d=News&id=126644America, you will see that US is just flooded with “Made in China”—the domestic manufactures can never beat the price. The US Senate believed that many American enterprises were having a chilly time and even going bankrupt because of improper competition from China—dumping as they referred to, which turned out to have an ultimate impact on the high unemployment rate. The unemployment rate reached 8.2% according to the latest release by the Bureau of Labor Statistics (BLS)6, and it has never dropped below 8% since January 2009. (APPENDIX 1)The US unemployment has always been a sensitive factor in their society, especially when presidency election occurs, making it more intractable. By accusing China of unfair trade, the members of Senate could shift the pressure and unsatisfactory to China and reduce chance of being attacked in the election. That is also major reason why they would hardly give up favoring China as a scapegoat.6/timeseries/LNS14000000Appreciation Pressure from the United StatesThere is no other country else like United States which wants China to re-evaluate RMB exchange rate so desperately. To explore the incentives behind, we intended to take a comparative analysis into these two countries’ foreign trade record.According to US Census Bureau statistics, the US trade with China deficit is 6.0 billion USD in 1985; the deficit is 33,789.5 billion USD in 1995, the deficit is 202,278.1 billion USD in 2005; the deficit is 273,063.2 billion USD in 2010 and drops to 217,379.6 billion USD in 2011.7The trade surplus and deficit is just like the cash on your hands, the more deficit you have, the less cash you can keep. The reason why US can still sustain to develop with burdening such a high trade deficits, is due to its economic super power and special character of US dollars. By printing dollars, the US government could create a global depreciation and implicitly shift the trade deficit around the world, because the real value of US dollars would decline, which means that they would pay “less” money for the same amount of debt.This kind of strategy was called Quantitative Easing (QE) by their Fed. They have been doing this for twice since the financial crisis burst out in 2009, and there is a rumor for the third round of QE. The price for doing this is the loss of credit of US dollars. The more US dollars one country holds in in its foreign reserves, the more it would lose.Until George Bush presidency, United States was still adopting a strong USD policy, so it can convince investors to hold USD. But when Barack Obama came into office, United 7/main/www/access.htmlStates began to switch to a weak USD policy, meaning that USD is depreciating against other currencies, aiming to fill the trap of trade deficit. And the policy worked pretty well, the United States trade with EU and Japan demonstrated a smaller deficit. However, it does not work with China, because China takes a special monetary policy. Since Asian financial crisis in 1997, China announced its currency policy as a “based on market supply and demand, single, managed floating foreign exchange system”. To be direct, it is just a policy says that when USD appreciates, RMB appreciates and vice versa. It is a tagged currency policy with a band of 1% before April 2012.When US sneaked from a strong USD to a weak USD policy, it targeted to solve the high trade deficit issue, but it did not work with China. Moreover, China is its biggest trade deficit source of USA. That is the major reason why United States seems to be so aggressive and irritated in RMB issue, along with a domestic unemployment rate excuse as well. Everyone on earth knows that their unemployment issue is due to American economic structure and consumption patterns. When they used unemployment rate as an excuse to urge China to raise RMB exchange rate, it is just like they accused Iraq of developing weapons of mass destruction but turned out to be a trap. As a Chinese saying: the villain is obvious.The United States Senate just passed the <<2011 Currency Exchange Rate Surveillance Reform Bill>> despite of China’s strong opposition. Americans just cannot bear with the constant fluctuation of RMB exchange rate against USD in the market, but this kind of fluctuation is regarded as a sign of exchange rate reform by China government. However, United States is too anxious to wait, they wish RMB can increase by 20~25% overnight.China’s Sufferings of Sudden Appreciation of RMBThe State Council of China is responsible for the economy of China, and WEN Jiabao, who is the primeminister of China, and his words and actions attract a lot of attention. Once WEN Jiabao said, from a political perspective instead of an economic perspective, about the exchange rate issue: “You have no idea how many small and medium sized enterprises will go bankrupt, you do not know how many Chinese will be unemployed when China experiences a sudden appreciation of RMB, only the premier of China feels the burden on his shoulder, this is the reality.”When you try to convince the government officials of China of the advantages and potential benefits of appreciating RMB: for example, fastening the pace of economic structure shifting; more access to acquire foreign property; cutting the international transportation cost and so forth—they know it better than you.There is no need to convince them because they can see the benefits that you see, but you ignore the dangers they worried about.Traced back to history, what we found is that the first two decade of a century is the most important period for a country’s economy to grow—if the country is expected to have its own millennium. And this is exactly what China doing now—avoiding instability, smoothing provokes instead of fighting against it, acquiring resources and technologies from all over the world as much as they can without bothering others’ discussions. And what is China doing now is to maintain domestic stability at any cost to create a good domestic environment, so it can face the outside world with a strong image and attract investments to China for its growth—for developing economic growth as much as theycan and improve the standard living of Chinese as well as developing domestic enterprises. In twenty or thirty years ahead, China may do the opposite thing—maintaining a stable outside environment atmosphere at any cost to create conditions and space for domestic changes.Therefore, now, we are in the phase 1 of the whole process—maintaining the stability at any cost and creating a stable environment to develop the economy. An abrupt appreciation of RMB will definitely cause a difficult time for small and medium size enterprises, which are also known for “primitive growth pattern”at current stage and cannot be transformed overnight, to go bankrupt, and hundreds of millions of Chinese will be unemployed, because they do have anything else except body strength—also known as being the labor force. After they return home and find their land has already been confiscated by local government and they cannot make a living, there will be serious riots around the country. This is what government absolutely trying to avoid and it will do anything to prevent that from happening. Therefore, an abrupt appreciation of interest rate is not at the best interest of China.A sudden appreciation RMB will definitely lead to the decline of Chinese exports, which has a large weight on domestic GDP currently. China is trying to transform its GDP components, emphasizing more on the role of consumption, but still, exporting counts more than 35% of the whole GDP8 , and around 40% of exporting goes to America.Due to the subprime mortgage crisis, the American people could not consume as before and there is no doubt that this kind of pattern shift would have a significant influence on8/class109_10877.shtmlthe export of China. When the demand is low but the relative price is getting higher due to the RMB appreciation, a serious pressure on the GDP growth and especially the maintenance of small and medium size manufacturers is expected.RMB has been appreciating for around 28% since 2006 (APPENDIX 2), reaching 6.4073 recently. A decline of international demand and rising domestic labor cost put a large amount of pressure on exporting and if RMB still keeps rising up continuously, the result may be catastrophic for China’s economy as well as social stability. Under circumstance like this, many Chinese firms are already facing a very tough time in earning profits, which will be explored in later part, therefore, the government is expected to stabilize the exchange rate and even to depreciate it.The Chinese government announced to widen the band of exchange rate from 1% to 2% in April 2012, which demonstrated the signal that the government is confident of the economy and may adopt a more flexible exchange rate policy, which means that the continuous appreciation of RMB may not be as certain as before, and by fluctuating, it may even depreciate.China’s Thoughts on RMB Exchange RateActually, RMB is experiencing an appreciation trend, rising by around 5% in last year, from 6.66 to 6.30.9 It is not satisfactory enough for Americans, in the latest APEC and G20, Obama proposed again that China should re-evaluate its currency and the estimated under-evaluation of RMB is about 20~25%, this data is from Peterson Institute of International Economics, but I do not know what the criterion is for the evaluation.Moreover, as mentioned in last part, RMB exchange rate has already appreciated for around 28% since 2006, the exchange rate and relative price advantages of China has already altered, but the so-called predictions from the US on China’s rational exchange rate remained the same.China’s price advantage is not as attractive as before, as some other countries are operating at a lower cost than China—like Vietnam, Indonesia, Bangladesh, Thailand and Mexico. And since those countries including China area operating at the lowest position in the supply chain, there is little technology in terms of the manufacturing, their products are identical because it is not designed by them. These dumping Chinese enterprises are feeling in asthma. Their profits are as low as less than 10%, and RMB has been rising 7% from January 2010, so their profits become around 1~2% comparably, and when the exchange rate fluctuates again, they may have a negative profit. There is no hope that they can leverage the 7% RMB appreciation and foreseeable constant appreciation by gaining just 1~2% profits, so the reality is that now many China’s export-conducted enterprises are having a really difficult time and many of them are going bankrupt. This situation started from the financial crisis 2009 until now.9/d/CNY/table.htmlHowever, China government does not allow any enterprise to apply bankruptcy now for the sake of social stability and political concerns, so these enterprises may apply for the saving loans from the government—both sides know clearly that there is little of chance that they can pay back this sum of money. But for the sake of stability, China government is still offering that loan. What is the consequence that they could not pay back the loans? These loans will become dead debts in bank’s financial statement, and the way they clear these dead debts is to print notes—causing a higher inflation rate. So the volatility of exchange rate is finally shifted to the ordinary Chinese people.That is also a reason why the inflation rate is so high this year, and the CPI has reached over 4%.10China government has already realized the irrationality of Chinese economic structure, and urges itself to switch to a knowledge-based economy. We can regard it as a trend, but there is still a long way to go before this goal comes to reality. Just imagine, the 7% appreciation in last two years already caused these enterprises feeling suffocated, and they are surviving by relying on the funds instill from the government. What if the RMB appreciate by 10% in next two years? The best choice to them becomes quitting since if they go on producing they will suffer a loss. Can China and these enterprises shift their low-cost, cheap labor strategy to a R&D based strategy with core competence in two years? NO. The restructuring includes a system transformation, different core value and corporate culture and newly-trained personnel. These things cannot happen within two years—it is too short for that.By saying that, what we are trying to clarify is that there are not too many conditions and incentives for RMB to appreciate like years before.By far, there is not any formula or 10/zt2010/zgzctz/criterion for confirm the rational exchange rate of any other two countries. And we are trying to do the work based on the two countries’ national situations and trading balance. The twelfth five-year plan specified the goal of accelerating the shift of economy structure, which meant that the fundamental alternation of economic structure was expected to be in shape by 2015, and during the process, any sudden change of exchange rate may have a uncertain impact on the whole economy. By saying that, we suggest to consider the current exchange level as a rational reference, since a lower exchange rate than now would put too much pressure on China’s exporting, economic development and eventually social stability, and the current level did not arise too much tension and hostility from America since the protests from the US were not as strong as before, and the widening of band suggested a more flexible exchange rate instead of an unilateral rising direction.On April 16th 2012, the State Administration of Foreign Exchange announced to abate the action of compulsory enterprises’ foreign reserves clearing. By doing this, China is able to alleviate the current account surplus and huge foreign reserves pressure, lowering down the inflation rate which means that the central government is able to adopt a more flexible monetary policy. The appreciation pressure of RMB can be eased for a certain level.Predictive RMB Appreciation RateRMB has risen for more than 5% in 2011, reaching to around 6.31.This can be seen as a recession China made to United States’ pressure. United States and president Obama kept mentioning that China should continue to appreciate its currency at a faster speed whenever they were given the chance to speak. This can be seen as a political competing both domestically and internationally. Because United States needs to shift the domestic unsatisfactory about bad economy condition and high unemployment rate to the anger to China’s manipulating RMB. Whether China really manipulates RMB or not is not important, what is important to them is to make the American public believe that China is doing so and that is the curse of high unemployment rate in United States.And by accusing China of under-evaluated RMB, it aims to suppress China’s rising by making it more difficult for China to develop the economy.For China, its principle is to focus on economic construction for the past thirty years. There have been a lot of external challenges and problems arose during this period and China’s attitude is to tolerate and minimize the losses at the best they could. This kind of behavior is always criticized of being weak from domestic public. But we should also notice that, this is the most suitable strategy so far, and China will continue to adopt this kind of attitude for at least next decade, if no vital problems of principle appear, this will still be the route of marching.We should also recognize that if there is no RMB appreciation in the future, you are just making United States has no choice at all—pushing them to the edge of the cliff. They can do nothing but to impose a 27.5% tariff on every item imported from China and Sino-US trade war erupts. This is a lose-lose situation that no one wants to see. 40% of China’s exports are conducted in United States, and when you really begin to tear to face of each other, China will suffer a lot as well. Moreover, RMB appreciation has its domestic necessity as well, United States pressure just made the issue more urgent, making us more swift and careful to tackle the problem.Comprehensively, I think what China’s government doing now is very proper.Up till now, RMB has appreciated by 5% from 2011, making it have some space for both of sides to negotiate and bargain. That is what is happening now, US still proposes that China should appreciate the currency while China insists the RMB exchange rate is the domestic affair and not manipulated nor underestimated as well, but both of the sides are cautious to take any more drastic measures. RMB may still appreciate, but it may take at least one more year to reach 10% accumulatively after 2011, but it is expected to proceeds in a very stable way, due to the cause of China’s more flexible monetary policy, less pressure of appreciation, economic shifting necessity, widened band of exchange rate etc.Due to the effects of many recent important events, like widened band, cancelation of compulsory enterprises foreign reserves clearing, lowering down the reserve ratio and so on, there seems to be no strong signals that demonstrate the further appreciation of RMB. The RMB exchange rate started to float in both sides from September 2011 in Hong Kong Non-Deliverable Forwards (NDF) market, which is an indicator of measurementfor the overseas market expectations on RMB appreciation. This kind of bilateral fluctuation suggested that the RMB exchange rate may have reached a relative stableequilibrium point. Those actions and changes mentioned above were also the measures taken by central government to continue fostering the foreign exchange system reforms. From this year, the exchange rate remained going up or down in both sides, which means that the bilateral floating has been the normal phenomenon accepted by the market, reaching a reasonable scope. China showed its attitudes that it was not pursing a fixed or a pegged exchange rate, but a regulated, bilateral fluctuating exchange rate system instead, and the widened band is a strong sign of that. Therefore, the expectations on the RMB appreciation may still exist, but not as strong as before, and the future appreciation is not expected to be large.Bank of China published the < Economical and Financial Prospects in Second Quarter of 2012> said that, due to the European debt crisis, the US dollars was still running at a high-value position and the currency appreciation of emerging market economics could be released. Cumulatively, RMB has been depreciated for 0.21% against USD, and from the analysis of Chinese trade data, capital mobility and the slowing down of foreign reserves all indicated that, the RMB exchange rate does not have a large underestimated situation currently.Comprehensively, the long-term appreciation of RMB is expected to reach an end and the current exchange rate has been close to the equilibrium, in the future, instead of unilateral appreciation like years before, the two-side fluctuation will be expected to be the major performance of RMB. Therefore, the current exchange rate 6.30 against USD can be seen as a good indicator for the exchange rates in the future, for the exchange rate is quite stable and in equilibrium.。