According to Wall Street Journal demonstrated that it is not only the West country but also developing country both pushed China revaluation of its currency. A G-20 central banker pursued "they should seek consensus rather than confrontation." They expected China will allow its currency to rising more rapidly. Because they believed that revaluation of the Yuan will help them to against the effect of their inflation, and to increase their import.
Since 2007, China shifts its exchange rate policies to managed floating exchange rate regime, made a more flexible exchange rate environment. Dollar became more and more weakness to against Yuan from $8 to $6 until now. Furthermore, there are many impacts exist in the domestic economic environment. Export is the significant part affected by Chinese exchange rate rising. There are 30 per cent of GDP from exports. It can be shown how important export is in China. Processing trade has occupied 50 per cent of export in China. Lower labor, lower price are the main characters for processing trade to compete with other competitors. Revaluation of Yuan will improve them products quality, and hence their competitive capability in the market. It also bought a huge increase pressure on China's export business in the short time. The processing trade will lose their main competitive factor, low price.
On the other hand, great deals of foreign refugee capital will entry into the estate market and stock market in China according to Chinese currency raising. It also become threaten for the Chinese economic market risk management.
China is a one of large export countries around the world. However, their export tax policy still limit parts of resources export leaving from China. It will protect the demand of domestic and the competitive price between home and foreign countries.
In a conclusion, Chinese government has to face a serious of problems made them hardly pick up the currency raising. The export company lack of the core preponderant competitive ability. Chinese financial market does not maturate opening to foreign investors. They have not ability to accept too much capital into the market. And the issue of inflation in China waits for solving to encourage people depositing their funds into the bank. Is it exist a way to reduce the pressure from other European countries or US raising currency, while improves domestic economic growth?
'On the other hand, great deals of foreign refugee capital will entry into the estate market and stock market in China according to Chinese currency raising.'
ReplyDeleteChinese government have some regulation prevent from loads of foreign capital come in. But they can still find ways though. In fact, no matter RMB will go strong or not, the money is still coming in. Expectation theory explains this cuase the investors have a high expectation on RMB, so they will bought and hold RMB assets.
what does actually mean by 'exchange rate environment' in this case?
ReplyDeleteI don't really think by Yuan revaluation can actually improve the product quality as the production process does not really related by foreign exchange risk. This is because the material used for the production itself are mainly from domestic resources.
I don't quite understand with 'economic market risk management' refer to, could you please explain it further?
Is it concerning tax rebate that you refer to by 'export tax policy' in the 4th paragraph?
If you do mean by China tax rebate, I think that the tax policy covers almost all exported materials instead of resources limitation. Therefore, this bring so much concerns from other countries as it impacts on the fair competition in relation to exported products.
thanks.
Reply Stella:
ReplyDeleteForeign refugee capital is unusual capital to invest in Chinese estate and stock market. It will bring some negative effects to Chinese economic development. On the other hand, raising of RMB will promote these capital entring into Chinese market.
Raising of RMB will give investors a good impression of China growth.
ReplyDeleteAs you mentioned above, issue of inflation in China waits for solving to encourage people depositing their funds into the bank. But, if people save their money into the bank,does it affect economy growth?
Reply for Lim comment:
ReplyDeleteI think encouraging saving in the bank exist closely relationship with economic growth. Because the bank increas interest rate causing that more money saved, less money fllowing in the money market. Then it will revalue of RMB to reduce the level of inflation.
You mentioned the revaluation of the Yuan improving products qulaity, could you please explain why this is?
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ReplyDelete