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China: Debate over RMB evaluation

On June 19, a week before the G20 summit, the Chinese central bank announced the increase of flexibility of RMB exchange rate. The People's Bank of China asserted that the exchange rate regime reform could help China work closely with its economic partners on the long term for mutual benefit and further development (via Xinhua). Today, RMB hits new record high to 6.789 per U.S dollar.

However, the debate over the impact of RMB continues in online forums. Some claim that only traitors would support the increase of yuan, some believe that the rise would benefit the society.

Since April, a post criticizing the US's pressure over RMB exchange rate as a new form of colonialism has been circulate widely on major forums, such as club.china, bbs.ifeng, and etc. The article compares the Japan yen's evaluation in the 90s with the current situation in China:

日元升值的后果是什么? 1995年之后,日本和美国的GDP之比重新拉开了距离,而且越来越大! 日元升值,就是美国对日本的一次经济阻击战!成功的把日本20多年的发展财富大转移到了美国去了。

What is the impact of the increase of yen's value? After 1995, the distance between Japan and the U.S's GDP became wider and wider. The increase of yen's value is an economic warfare against Japan. It had successfully transfered the wealth that Japan accumulated for 20 years back to the U.S.

历史总有惊人相似的一幕,面对中国的崛起,面对中国几十年积累起来的巨大财富,为了榨取中国的财富,为了遏制中国的崛起,美国又一次故技重施。近期除了挥 舞贸易保护主义大棒制造贸易壁垒,支持达赖喇嘛等分裂势力,力挺违反中国法律的谷歌,以对台军售给中国添乱外,同时不断拿人民币汇率汇率问题说事。逼迫人民币升值的背后隐藏的贸易保护主义的企图,深层次的目的是想狙击中国的发展,榨取中国的财富,保住美国在世界的霸主地位。这一点,我们不能不清醒地看到。

History keeps recurring. Now that China has become a strong country and accumulated a huge amount of wealth in the past few decades. The U.S government is using the same tactics again to repress China and squeeze our wealth. Recently, it promotes protectionism in trade, supports Dalai Lama's separatist movement, backups Google, sells weapons to Taiwan and gives pressure to RMB exchange rate. The motive behind the exchange rate issue is protectionism. The ultimate objective is to disrupt China's development and extract China's wealth so as to maintain the U.S hegemony in the world. And we have to be aware of this.

User, Sichuanese from Chongqing, in Tianya forum disagrees:

中國大陸不是一個巴掌大的地方。其有豐富的資源和人口。強大而廣闊的內地市場。人民幣有序升值,其實對中國大陸開闊內地市場是有催進作用。因為人們發現,賣給國內賺錢多餘出口。對於國內人民生活的提高有很大幫助。 

China is different (from Japan), we have rich resources and huge population. The increase of yuan can facilitate the development of internal market. People come to understand that selling the export goods to our own people can improve our living standard.

  
Another provocative post written by Pan Hongbing(潘宏斌) at Utopia forum accusing RMB evaluation's supporters as traitors has also been circulating widely across forums since March. The writer interprets trade statistics and argues that:

1、机电行业出口占全国出口份额近60%,而利润率只有2%~3%。如果人民币汇率升值超过2%,中国制造就成为历史。
   
2、纺织业占全国出口份额的15%,平均净利润率在3%~4%左右。如果人民币升值超过3%,纺织业将一片狼藉。如果人民币升值超过5%,这个行业就将消失。

1. 60% of our export is electronic product and the profit rate is only 2-3%. If the exchange rate increases more than 2%, made-in-China will become history.
2. 15% of our export is from textile sector and the profit rate is about 3-4%, if RMB increases by 3%, the textile sector will be hit. And if RMB increases by 5%, the sector will disappear. 



“中国制造”已经没有价格优势,人民币更没有上升空间。美国对中国发动的汇率战并不是为了平衡双边贸易,而是为了击垮中国。所以,汇率问题根本不是经济问题,而是政治问题,是压倒“中国制造”的最后一根稻草。

Made-in-China has lost its advantage and RMB has little space for value increase. The war on exchange rate is not to balance the trade relation but to attack China. The issue of exchange rate is not economic but political in nature. It is the last straw in undermining the regime of “Made-in-China”.

Tianya user, yjknj disagrees with Pan:

现在这谎言已经戳穿,这二个月因为欧元暴跌30%,人民币相对一揽子货币实际升值几个3%了,灾难不仅没见到,反倒是五月份出口劲升了近50%、(真服了 这些砖家搞的压力测试,),人民币高过实际价值升值肯定会对出口造成灾难,现在效应却是大大相反,这只能证实人民币的的确确严重低估了。无独有 偶,2007年人民币对美元也升值18%,此后二年也是中国出口最强势。

The lie cannot stand. In the past two months EURO has dropped by 30% and RMB has increased 3% accordingly. However, we did not witness any disaster. On the other hand, our export in May has increased by 50%. If RMB's value were higher that its market value, we of course would confront an export disaster, now that the result is on the contrary, proving that we have underestimated RMB's value. Actually back in 2007, RMB to USD's value was increased by 18%, but China's export had remained strong in the next two years.

yjknj lists out several benefit of the RMB evaluation:

1,假如升值百分之50,则大幅降低中国产业最重要的成本——购进原油铁矿石付出的天文数字,从而改变我国高成本输入(低廉利益送出的)凯子行为,最上游成本降低又逐级带动中下游全民产业降低成本,全面减轻国内通货膨胀压力。

2,中国多数进口业获益,部分出口业因为成本降低也受益。中国人民购置高端世界商品和购车加油以及出国旅游消费等等都受惠。

3,中国人均收入将由倍受歧视的世界倒数的穷鬼地位,跃升几十位进入中等收入国家,中国人较大提升形象和尊严。可能很多国家签证都能免签了。

4,因为出口减速,央行购汇滥增人民币(是支付外商投资和企业结汇时,对应印刷的)的印钞机可以终于在持续高速运转十几年之后减速,极大降低人民币流通的过剩,也有益于房价等的抑制。

1. If RMB were increased by 50%, the cost of our industrial production would be decreased accordingly — we have been acting like a fool and spending too much on natural resources such as oil, keeping our export products with such low profit rate. The decrease in production cost will help our industry and relief the inflation.

2. Our import sector will be benefited, some export sectors will also be benefited. Chinese consumers for foreign products such as vehicles and tourists will be benefited.

3. The average income of Chinese people will be increased and China can be elevated into middle income country. Chinese people's self image and self esteem will be improved. More countries will give us visa free arrangement.

4. The slowing down of export will also slow down the printing of RMB and reduce the circulation of yuan, thus repress the housing bubbles.

Now that the evaluation of Yuan has become a reality, lee21799 from Tianya anticipates the outflow of hot money and its impact on the stock and property market:

4.央行一直强调此次汇改不会一次性重估人民币,意思很明确了嘛。美元要留是留不住了,没办法只能让他们有序离场。如果一次重估到位,人家没了念想,美元 部队就会一次性全局撤退,那样以房地产为首的中国资产就会轰的一声巨响。

4. The central bank keeps stressing that the evaluation will not happen over night. It is clear that we cannot keep the U.S dollars inside China anymore and they will leave the market slowly and gradually. If the evaluation happens overnight, the U.S dollars will retreat suddenly and the property market will fall drastically.

    

5.接下来的演出,房市就算了吧,一个已经拉响了引线的手雷;现在还没看明白,进去就是当炮灰的料。股市应该会有几个月的好行情,刚宣布汇改,股市立涨,很能说明问题啊。

5. The property market has no hope, it is already a bomb waiting to be exploded. If you dare to enter, be prepared to turn into ashes. The stock market will remain high for a few months, it is self-explanatory as the stock rose in reaction to the exchange rate policy announcement.

  

6.热钱走了,会有啥后果。央行结汇会回收天量的人民币上去,流动性一下子就下来了。其实说白了,房价就是钱堆出来的。有钱进,接着涨;没钱进,只会跌。 外资热钱在中国旅游多年,还直接、间接借了不少给中国企业与地方政府(地方政府融资平台干嘛的,融资不就就是借钱嘛)。走的时候,伸手要债;没钱还啊,抓 紧变卖资产吧;都急着变现,资产就会贱卖,从而加剧资产价格下跌。

6. Once the hot money leaves the market, the central bank will collect the RMB from the market, reducing the circulation of yuan. The price of housing property is a capital game, with the inflow of money, it rises and when money flow out, it drops. All these years, foreign capital has been flowing inside the Chinese market, giving loan to Chinese business and even local governments. When it leaves the country, they have to pay back. If they don't have the capital ready, they have to sell the property. The property market will certainly drop.

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