Appreciation of RMB Influence China Export

A year has passed since June 19 last year when the People’s Bank of China (PBC) announced to increase the flexibility of RMB exchange rate. During this period, the rate of RMB to USD has kept a trend of fluctuating and slow rising. Up to June 17 this year, the price ratio of RMB to USD has increased over 5% than one year ago. Though it helped to repress the inflation China’s economy is now facing, it brought some bad influence upon the competitive power of export enterprises.

China’s financial department has changed their attitude towards policies of RMB rate during the year. Though they still keep a denying attitude to RMB appreciation in fast speed as America demanded, they have tolerant its increasing in value slowly. The main reason for this situation is that China has to deal with inflation. The CPI of May this year has raised 5.5% than last year, largely exceeded the controlled target of 4% set by government. The appreciation has had a certain effect on repressing the price of imported commodities. A report released in 14th by PBC emphasized the further promotion of RMB rate reform to hold back the inflation and capital bubble so as to realize the sustainable development of China’s economy. Among investors, RMB still has a strong expectation of appreciation, and there has been a trend of increasing of RMB reservation in some places such as Hong Kong.

The rising of RMB exchange rate has gradually impacted on China’s export enterprises, with the deflation policy and increasing cost of labor, some medium and small enterprises in Zhejiang or Wenzhou where light industry export enterprises are centered bankrupted one after another, and enterprises of South China started to have problems in their business accounting.

China’s economic exports believe that considering the factor of increasing commodity price, the rate of RMB has increased by 10% actually. If it keeps rising in such speed, China’s economy would feel hard to bear.

Some insiders of PBC suggested raising the allowed fluctuation rate of basic value of exchange rate to 1% from 0.5% in order to increase the possibility of rate declining, so that the speculation activity with expectation of appreciation of RMB could be restricted. Now China’s financial authority are seeking delicate management on it.

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