Why not take USD-RMB exchange rate to 1:10 or 1:50 or even 1:100 then?
RMB exchange rate has real impact on what people are doing, how economy is structured, etc. etc.
Chinese Economics Thread
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Why not take USD-RMB exchange rate to 1:10 or 1:50 or even 1:100 then?
RMB exchange rate has real impact on what people are doing, how economy is structured, etc. etc.
A rising yuan gains you nothing until you are settling with it on imports. Conversely, a lower yuan is proper countering strategy to explicit Western attempts to curtail Chinese exports.
Once China begins to conduct the majority of its raw goods in the RMB and when the exports situation has settled into a trend that that China sees as stable then you'll see the Yuan rise more rapidly.
A $1T surplus simply cannot happen with a rising yuan during a trade war with the US. People don't understand how amazingly effective the policies undertaken by China are. You are talking recording setting trade volumes and surpluses when the US and West is trying to everything it could to collapse your trade engine and your economy.
Exactly what are you going to do with those USD? They can be seized at a moment's notice, like with Russia anyways. (Not to mention the fact that even China's allies are imposing duties on China. This huge surplus can lead to more possible trade disputes further down the line. Beyond that, you are just getting fiat currency of another country as compensation, which is paper at the end of the day.)
Making RMB appreciate will align incentives to get higher share in more value added industries. It will also boost the purchasing power of Chinese individuals which will boost domestic demand, increase consumption and the like.
It will help attract foreign talent, since earning in RMB will be more attractive.
For any industry that is negatively impacted, you can choose and subsidize a select few which you really need. But, RMB appreciation will make Chinese society more aligned with a "high-quality" indicators.
Good until you realize most of that surplus is in US dollars so can be seized or frozen anytime if the US deems it necessary in extreme cases, and there will be nothing China can do about it other than get angry. lol not a smart long term strategy . Keep in mind that China and US relations will only get worse not better , so expect the worse always .
1) Letting the Yuan rise while the US is intent on fucking over China's trade engine is the same as the Plaza Accord which punted Japan's economy into their lost decade when the Yen appreciated,
2) Gaining Forex (not explicitly accumulating USD since Chinese trade with the US is literally collapsing -- down 30%) is not even the main goal. It is stabilizing industrial output and employment when the US is actively trying to fuck you over.
When China is facing a historic unwinding of a historic RE bubble while the US and West is throwing up tariff after ban after embargo, you do not do what the Japs did and make your products more uncompetive by helping the US with a secondary tariff which is what a currency rise would do.
China will eventually rise the Yuan. At its timing and its pace.
(BTW, there is deflation in China the spending power for Chinese goods is greater than ever. A currency rise would only give Chinese more spending power for foreign goods which is exactly how you fuck yourself over in trade war and undermine your own industries.)
USDs are a declining part of China trade returns. And they are no longer automatically converted back into US intruments like treasuries. They are being converted into gold, copper and assets in the Global South. Removing the risk of USDs can't happen overnight but it is happening.
And again, direct trade with the US is collapsing which are the intended effects wanted by the China Hawks. They wanted to pummel the export engine and all the jobs related to it.
So China is going to help them out by doing the Plaza Accord like Japan? Are you nuts?
By all rights, with the popping of the RE and a trade war China is outperforming beyond expectations. A $1T surplus is an incredible feat at any period in history but especially in this environment and is exactly what you need when faced with trade war.
Again, I see the Yuan rising but it would be stupid to have done it before things are fully stabilized and certainly not during in a fucking trade war where they are throwing fucking tariffs left and right on Chinese goods.
manqiangrexue
Brigadier
Goddamn, can you talk like you know a little bit about economics or science? It's a balance: too low and you're not earning enough money even exporting massive amounts; too high and you're not exporting enough. The current balance has China at a >$1 trillion trade surplus for the year so what are you complaining about again?
What led to Japan's lost decades - Plaza Accord in 1985, or Busting of a massive property bubble in 1991-1992, or slow deceleration due to demographic issues beginning in 1960s and exacerbating in 1990s, or competition from other countries/regions (China, Korea, Taiwan, Europe), or missing the Digital bus completely - is a major policy debate, that can't just be dismissed as due to plaza accord.
Industrial output can also be stabilized at 6.3 USDRMB exchange rate. It's just 10% increase which will not have much impact on Chinese exports, but lead to greater usage and holding of RMB (everyone likes to hold an appreciating asset).
This logic has no endline, you can go to forever depreciation. What the optimum exchange rate is a complex business, but current exchange rate is highly depreciated. Just a 10% appreciation, which will be say 5-6% real imported input adjusted appreciation, is nothing that Chinese exporters can't handle.
In fact the people who can't handle that must go bust. It is a requirement of an economy to have creative destruction so that people keep rising up the value chain gradually. China right now has a labor shortage in the factory sector.
Precisely, it would give Chinese people more spending power, but they won't spend that on foreign goods which are not competitive but on domestic goods. If the RMB appreciates by 10%, leading to say reduction in commodity costs for cars, making cars cheaper still, Chinese people are not going to buy imported cars, just more expensive domestic cars. That leads to demand increase.
They are not kept in the forex reserves, but they are still USD kept by state banks. All gold, copper purchases are already part of import data. If you are talking about assets in Global South, US can do one military operation to seize any such asset in most of the global south, or the global south countries themselves from time to time seize assets when governments change (common in Africa).
Why does China matching the US in nominal GDP matter anyway?
The vast majority of economic activity is produced and consumed domestically in local currency.
That that $1 trillion USD is simply paper and of not much use.
That awarding people who hold RMB will lead more people to hold more RMB, hence appreciation of RMB is a must for making it a store of value.
That higher value of RMB will boost consumer demand, which will lead to more products (primarily of domestic origin) being bought.
That having a higher standard of living will lead to lower exodus of talent.
That China's nominal growth right now is at 3.5-4% which is way too low for its stage of development.
Does getting wealthy for an average Chinese person not matter? Holding a currency with higher value makes them richer, able to afford more, have a bigger economy, economic power translates to military power.
If vast majority of consumption and production is in local currency than appreciation shouldn't matter much.