2015-01-30

RMB appreciation(part I)

What's the impact of RMB appreciation on our life and economy?

 

Pros and cons of RMB appreciation

Pro

1. Be in favor of imports of goods . When the currency appreciation, the importers can get extra profits from the appreciation of the exchange rate, which provides space for price adjustment of imported goods in domestic market. When the price of imported goods fall, demand for imported goods increases and thereby the number of imports increases.

2. Help stabilize the price of domestic goods and increase revenue, provide more employment opportunities. Change in exchange rate will have an impact on price of domestic goods. Because the appreciation of exchange rate will cause a decrease of the prices of imported consumer goods and material. Thereby the general level of market prices will be inhibited and balanced.

3. Good for traveling and studying abroad. People can buy and enjoy more foreign products and services with the same money. Moreover, RMB appreciation means depreciation of US dollar, which means the families who support their children to study abroad can cut down the expenses. Domestic residents outbound travel also benefit from RMB appreciation.

Con

1. Be unfavorable for foreign tourists inbound tourism. The foreign tourists will have to pay more money on inbound tourism, which obviously has a negative impact on the domestic tourism industry.

2. Bad for goods exports . For example, originally a product cost RMB 100 in China would be sold to the United States at $ 12. However, the same product will be sold at almost $ 13 now. Obviously RMB appreciation is very unfavorable of China 's export trade.

3. Chinese Mainland will lose its appeal to foreign investors because the cost of production and labor cost go up.

From a historical perspective, currency appreciation of a nation or region will cause a rising stock market of this country or region. The RMB appreciation has been rising at nearly 7 percent, although the rate of increase is not big, but it indicates that China has opened the gate of RMB appreciation. Foreign hot money’s expectation of the appreciation of RMB is bound to attract speculative capital’s quick inflow, so as to promote the rapid rise in the stock market and real estate asset prices. Japan, Thailand and Taiwan had such experiences.