*** Appreciation is an internal reason that can follow the golden mean

In June this year, the renminbi launched a second exchange reform, but recently we have seen the international debate on the renminbi exchange rate. The United States hopes that China will step up its appreciation of time and believe that the appreciation of the renminbi will ease the impact of China’s manufacturing on the US manufacturing industry, reduce the imbalance in trade deficits, and ease domestic employment pressure. This round of economic crisis is different and usual. At present, the United States is faced with a crisis of resource bottlenecks. It is hoped that the appreciation of the renminbi will boost its own supply, and it is in itself inconsistent with the principle of division of labor for global integration. Now, what the United States needs is how to break the shackles of resource bottlenecks in the production structure and use new technologies and new industries instead of competing with China for cheap production division of labor. From this point of view, it seems that apart from the political factors, it is impossible to find the proper reason for the United States to put pressure on the appreciation of the renminbi. For the time being, let's not forget the conspiracy that the Americans can't tell. Just talk about the deep reasons behind the appreciation of the renminbi from China's own internal factors.

The need to transform economic development patterns and reduce the gap between rich and poor

During the past 20 years of reform and development, China's economy has mainly depended on export-oriented processing industries to drive growth. Judging from the pattern of world economic integration, China's export-oriented model just took over the industrial structure of the United States in the 1970s and successfully promoted the industrial upgrading of the US manufacturing industry. In the process of globalization, China has embraced processing and manufacturing industries that rely on cheap labor and not too high technological content, such as clothing, daily necessities, shoes, small household appliances, etc., while the U.S. manufacturing industry has undergone earth-shaking changes with technical content. And high value-added manufacturing dominates such as software, computers, chips, automobiles, and heavy machinery. As a result, the industrial division of labor in the process of global integration between China and the United States has already taken shape.

Since China has chosen and relied on an export-oriented model of economic development, its most fundamental advantage is its cheap labor. In the final analysis, money is a measure of the value of labor. In other words, China's economic development model must rely on cheap currency. To maintain a fixed exchange rate system and maintain a proper 'cheap' exchange rate, it is basically to maintain an export-oriented economic development model and maintain steady economic growth.

It is on the basis of this development model that the Chinese economy has grown by leaps and bounds in the past 20 years. Over time, the development model originally relying on cheap labor gradually began to encounter development bottlenecks.

First of all, from a long-term point of view, China cannot have unlimited and sustained cheap labor. Around 2005, China’s population structure began to enter the true Lewis turning point. Since that time, processing and export enterprises in Shenzhen, Dongguan, Jiangsu, and Zhejiang have experienced a large number of recruitment difficulties. The labor force has been slashed between the labor force and the export-oriented economy. There are contradictions in the relationship.

Second, in the 20 years of development, the production mode that relied on cheap labor forces has gradually widened the gap between rich and poor in China. On the one hand, we rely on export-oriented economies to accumulate large amounts of wealth. However, these assets are concentrated in the hands of a few people. On the other hand, the currency representing the value of the labor force is undervalued for a long time. As a result, although the wage level of the labor force rises in nominal terms, it deducts price factors. The value of labor has not been significantly improved.

For this reason, in 2005 China launched a renminbi exchange reform, which is basically to resolve the above two contradictions. However, with the outbreak of the international financial crisis in 2008, the Chinese economy is facing a crucial moment in transition that must be under the impact of the crisis, and all that is based on the stability of currency values ​​and exchange rate stability. In response to the impact of the financial crisis, the RMB exchange rate has temporarily adopted a peg to the US dollar strategy, but this does not represent China’s long-term exchange rate policy. At a certain level, the slight appreciation of the renminbi currently does not necessarily cause significant damage to China’s exports. Imagine that the effective exchange rate of the renminbi has appreciated by 13% since July 2005, and Chinese export companies still managed to increase the proportion of China’s export share in global exports. From a deeper level, the international financial crisis in 2008 made it necessary for China to face an economic development model that gave up too much of its export-oriented economy. Moreover, China has already pushed forward the economic transformation from certain levels. Appropriate appreciation can speed up the elimination of China's backward production capacity. . In addition, a proper appreciation can accelerate the industrial transfer to the low-cost labor force regions in the western regions where over-reliance on the cheap labor force can complete the benign transition before the economic transition. The best way to ease domestic excess liquidity and imported inflation

If we understand the relationship between exchange rate and trade, under the floating exchange rate system, a large number of trade surpluses will certainly increase the value of domestic currency, but the renminbi has not changed in accordance with the laws of market economy. This is because of the official foreign exchange settlement system of China, foreign exchange for companies must be exchanged for RMB through the State Administration of Foreign Exchange. The so-called RMB exchange rate in the market is actually formed by bidding between members of the China Foreign Exchange Trading Center, among which the largest member It is the People's Bank of China. The foreign exchange position of most domestic commercial banks will be entered into the China Foreign Exchange Trading Center for exchange and conversion into Renminbi. Most of these foreign exchanges are purchased by the People's Bank. The level of the People’s Bank of China’s bid for RMB is formed by all of us. The fluctuation of the RMB exchange rate.

From this point of view, the People's Bank of China is facing double pressure: on the one hand, it is necessary to maintain a stable exchange rate; on the other hand, with the continuous increase in foreign exchange earnings, the pressure on the placement of base currency is increasing. Therefore, in the first exchange reform of the RMB in 2005, China was not forced by the pressure of the WTO but it was out of its own needs. In the same period, China’s foreign exchange reserves began to diversify and invest in multiple channels, including the continued increase in U.S. treasury bonds held by China Investment Corporation, which is basically a solution to our increasing foreign exchange.

As we all know, the outward-oriented economic development model will inevitably bring about an increase in foreign exchange reserves and the corresponding increase in the amount of base money. The limited nature of China’s investment channels has determined that excessive wealth investment cannot be diversified, which has brought great pressure on China’s inflation. On the one hand, the state can guide the correct flow of private capital through policies; on the other hand, it is to manage the supply of basic money. This is like a reservoir with inlet holes and outlet holes. There is more water in the pool. On the one hand, it is necessary to release the outlet, that is, to expand the investment channels. On the other hand, the intake should be tightened to reduce the inflow. The most direct way to change this is to change the mode of economic development. The effective method of the buffer period is to properly increase the value of the Renminbi and reduce the amount of RMB-denominated coins under the corresponding foreign exchange inflow. Therefore, a proper appreciation of the renminbi will help alleviate inflationary pressures caused by excess domestic liquidity.

Of course, in addition to the inflationary pressure caused by excess liquidity, China is now also facing a serious input-type inflationary pressure. The main reason for this inflationary pressure is the increase in the prices of international raw materials. A relatively effective way for emerging developing countries to address this type of imported inflation is to regulate and control the exchange rate, that is, to reduce the impact of rising international raw material prices on rising domestic costs through the regulation of exchange rates. Historically, when the inflation rate rises, the pace of RMB appreciation has accelerated. At present, the global commodity prices are oscillating at a high level and are most likely to rise again. In the future, the input inflationary pressures facing emerging markets will be very high. The transmission of China's PPI to CPI has reached the end of the lag period. The transmission of raw material prices to the CPI will be very sensitive. The current appreciation of the RMB will help ease the pressure of input inflation in the short term.

Some people will naturally ask the question whether the appreciation of the renminbi will not bring in more hot money, thereby aggravating the rise in domestic asset prices. On this point, we must first make it clear that China is a country that is not completely open under capital projects. Capital inflows and outflows are quite stringent. After the renminbi's appreciation, the amount of hot money inflows is very small, and it is impossible to push up asset prices on a large scale.

Appreciation of the need to pay attention to the golden mean

The process of future appreciation of the renminbi still has many uncertainties. This year's renminbi interest rate adjustment will be cautious and moderate. The pace of appreciation of the renminbi in the future depends to a large extent on how China and the global economy develop. At present, many of China's export enterprises are labor-intensive enterprises. It will take some time to increase the production efficiency, technological content, and added value of such enterprises. However, in this period of adjustment, enterprises cannot remain in a state of no profit for a long time. Considering that most companies' profit margins are around 3%, the magnitude of RMB appreciation during the year cannot be greater than 3%. This will have a positive effect on China's economic transformation. On the one hand, it will open the channel for the appreciation of the RMB exchange rate; on the other hand, a paced, rhythmical appreciation of the renminbi will ease the expected pressure on the renminbi appreciation over a long period of time and gradually stop it. Potentially volatile speculative capital inflows.

At present, China's economic development seems to face a dilemma: how to ensure economic growth and change the economic development model. The two seeming contradictions but complement each other, in which the value of the renminbi will play a decisive role. The fluctuation of RMB exchange rate must meet the needs of China's economic development. In different periods, the RMB exchange rate has been given different historical meanings. At present, although the renminbi needs to appreciate, at this critical moment, how to appreciate, the speed and pace of appreciation, is an art. Excessive appreciation and excessive speed will cause our company to face a cost predicament when it has not completed its transformation, which will lead to a slowdown in economic growth. However, if the appreciation is too slow and the margin is too small, it will not provide the necessary promotion to the economic transition, nor will it solve the gap between the rich and the poor.

As mentioned above, the formation of the RMB exchange rate depends fundamentally on the level of bids made by the People's Bank of China, so the pace and magnitude of RMB appreciation can be controlled. The exchange rate of the RMB should be based on the principle of moderation, adhere to principles, be impartial, be nothing less than obsessive, be good at handling dual purposes in dealing with contradictions, compromise in harmony, and at any time in accordance with the times, advance with the times, and resolve There is a good balance between internal concerns and dealing with external problems.