RMB appreciation(part II)

How does RMB appreciation influence Chinese export trading?

The greatest impact of RMB appreciation is China's export trade. The Chinese and US trade friction is attributed to China's huge trade surplus with the United States. When RMB appreciates, China's currency has no advantages. 

China's huge trade surplus with the United States should get ease owing to the appreciation of the RMB, but the appreciation is limited. At present, the rate of RMB appreciation is around 7%. However, the United States wants RMB to appreciate 10% to 40% in order to resolve the China-US trade issues. But the experts expect that China's economy can only withstand the RMB appreciation at a rate of 7% to 10%. As a result, China won’t allow the RMB to appreciate too much for their own interests.

In fact, of the huge amount of China's exports, foreign investment and joint ventures account for a large part of it. In 2006, of the six hundred billion export, about 60% is exported by foreign-owned enterprise, the real domestic enterprises, including state-owned enterprises, collective enterprises, private enterprises, account for less than 50%. At present, the bilateral trade relations between China and United State is: US investment - Made in China - US consumer. For example, original cost of a pair of Nike shoes in US production is $ 20. Now the offshore cost of the shoes is $ 4 after transferred to China. China pay for $ 2 on sourcing materials from abroad. China enterprise earns the profit $ 0.4. So what the China enterprise earns is only the staff’s salaries and corporate taxes paid. As Chinese wages are much lower than that in United States, and many provinces have preferential tax policies for foreign-funded enterprises, our Chinese enterprises do not get much profits. Such a situation forces our business must move toward high value-added type of business and products. Low value-added business will be out of the market sooner or later, the RMB appreciation will undoubtedly accelerate this process.