Excess funds push the yuan to break 8

After hovering at the 8.00 mark for a long time, the USD/CNY exchange rate broke through this psychological resistance level for the first time on May 15, and finally closed at 7.9976 yuan in the matching trading market, having reached a record of 7.9965 yuan during the session low. This is the first time since the reform of the RMB exchange rate mechanism on July 21, 2005, that the USD/RMB exchange rate has broken 8. In the past 10 months, the cumulative appreciation of the RMB exchange rate has exceeded 3.36%.

Although the RMB exchange rate returned to above 8.00 again on May 16, it is an indisputable fact that after the stagnation, the RMB began to appreciate slightly in the recent period. This has sparked speculation about the future direction of the yuan. In a report released on Monday, Capital Economics argued that the yuan's recent small appreciation was related both to the weakening of the global dollar and to China's conscious decision to strengthen the yuan.

The RMB exchange rate is in a dilemma

In July last year, the RMB was officially decoupled from the US dollar, thus pegging to a basket of currencies. Since then, the issue of the RMB exchange rate has become a hot topic on the international economic stage. In response to the pressure from the US government to speed up the appreciation of the renminbi, as well as the recommendation of the International Monetary Fund (IMF) to appreciate, the Chinese government has repeatedly said that it must be cautious about the exchange rate issue.

We are now facing a huge embarrassment. If the RMB continues to appreciate, it may lead to an increase in unemployment and people's livelihood problems. However, if the RMB exchange rate is not adjusted, it may stagnate the normal operation of the macro economy. The danger is no less than the appreciation of the renminbi.

For China, the RMB exchange rate has long been a sensitive social issue. Chen Xingdong, chief economist of Peregrine in Paris, believes that with the growth of China's economy, the employment level of the entire market is increasingly dependent on exports. In other words, even any small changes in the RMB exchange rate now may lead to unemployment levels. This is a political and social issue for China. Therefore, if the RMB responds to international pressure and appreciates sharply at one time, it may bring the labor market to a dead end. This may be the Chinese government's greatest concern.

However, the risks remain high if the Chinese government makes a commitment to allow the yuan to appreciate gradually and slowly in the future. Chen Xingdong believes that such a commitment is equivalent to encouraging international speculators to gamble on the RMB exchange rate and increase the influx of hot money into China, which may continue to push up the RMB exchange rate and cause greater harm.

On the other hand, if the renminbi is not allowed to continue to appreciate, the problem is equally serious. Liang Hong, chief economist for Asia at Goldman Sachs, believes that the undervaluation of the renminbi makes Chinese products and assets too cheap, resulting in excessive foreign demand for Chinese products, which is the root cause of the overheating economy in the past two years. Although we have raised interest rates in the past to try to control overheating of investment, more than a year later, China's savings have become more, and domestic consumption (including investment consumption) has become less.

She believes that the best policy to deal with China's macroeconomic problems is to revalue the renminbi and then adopt a more flexible monetary policy. If the RMB exchange rate is not adjusted further, then the domestic interest rate level needs to be greatly increased in order to achieve the purpose of controlling the overheating of the economy. Such an approach would be too costly for the fragile domestic financial system.

We must also take into account that China's economy is currently too dependent on foreign markets. Once the US economic growth slows down, or some trade protectionist measures are introduced, the demand in foreign markets will eventually decrease. Then, if the RMB exchange rate remains unchanged, another problem will be that the Chinese economy is exposed to more external risks.

Liang Hong believes that the problem is becoming more and more complicated. China's current trade surplus and foreign exchange reserves, each one basis point increase, will lead to more speculation against the renminbi, and the Chinese government will therefore pay a higher cost to maintain the exchange rate.

The exchange rate has become the "main contradiction"

Because of the employment problem, the RMB exchange rate has changed little in the past year or so. But other policies, such as monetary policy and administrative control, have not been able to effectively alleviate the imbalance and overheating problems of the Chinese economy. At this stage, the RMB exchange rate issue has become the current "main contradiction", and the contradictions accumulated in the past are all accumulated on the "exchange rate" issue. From this, we can expect that in the future, the possibility of RMB appreciation is increasing.

Since the end of 2004, China's import growth has significantly lagged behind export growth. Liang Hong believes that one of the main reasons is that the government's macro-tightening policies have led to weak domestic demand. With weak domestic demand and a dramatic expansion of production capacity over the past few years, Chinese producers have turned to sell their surplus to the global market. In 2004, the industries with the most obvious excess production were steel, cement and automobiles.

But the problem is that overheating in exports can easily spread to other sectors of the economy through the income multiplier. In early 2004, steel, cement and electrolytic aluminum were separately listed as targets for policy tightening. The tightening industry was later expanded to nine. By 2005, most of the industries on the blacklist were no longer overheated. But our macro-economy is still driven by investment. In 2005, investment continued to grow at a strong rate, and most of the growth was driven by other industries. It can be found that the control of the administrative power over the macro economy is weakening, so it may be necessary to rely on macro measures for regulation in the future.

Among the currently available macro measures, there are nothing more than monetary policy tools and exchange rate measures. In the past year, the central bank has been trying to control the overheating economy with monetary policy, raising interest twice, increasing the deposit reserve ratio, issuing bills and so on. But as Liang Hong said, the root cause of the overheating economy lies in the overheating of exports and the undervaluation of the renminbi. It is clear that monetary policy has not played a role in controlling the overheating of the economy, and at the same time, the influx of hot money into China is increasing.

The exchange rate adjustment is likely to be officially launched in the near future after other control measures are "out of whack". The RMB may officially enter the appreciation channel. But the expected rate of appreciation may not be very high, and most experts believe that a 4% to 5% appreciation in a year is more likely.

The appreciation is good for the stock market

According to international experience, currency appreciation usually leads to the prosperity of the stock market and real estate market. On the premise that the RMB has strong appreciation expectations, the stock market will benefit from it.

The reporter interviewed two analysts, both of whom believed that the appreciation of the renminbi can first increase the relative attractiveness of the valuation of A-shares, thereby producing an obvious capital boosting effect. The reason is easy to understand. If the RMB appreciates, A shares will be more valuable than before. In recent years, international investment banks and investment funds have further increased the weight of China in global capital allocation, and some funds have directly entered mainland capital on a large scale through formal (such as QFII, strategic investments held for more than 3 years, etc.) and informal channels. market. The scale of capital entering the domestic market is expanding substantially.

There is also the so-called "merger revaluation effect". Since the appreciation of RMB assets has improved the relative attractiveness of RMB assets, foreign mergers and acquisitions around related listed companies are expected to be carried out in large numbers, thus greatly expanding the valuation imagination space of listed companies and bringing about the effect of asset revaluation.

If it is specific to each industry, the first benefit may be the industry with high foreign exchange liabilities. For example, industries such as aviation, communication operations, and trade have high foreign exchange liabilities and are likely to benefit significantly from the appreciation of the renminbi. Some industries that import raw materials or components can also benefit from it, including papermaking (import of pulp), steel (import of iron ore), cars (import of some important components), petrochemicals (import of crude oil), chemical fibers and plastics (import of raw materials), Aviation (import of aviation equipment), clothing (import of high-end fabrics) and other industries. Since these industries need to import a large amount of raw materials and components every year, the appreciation of the RMB will reduce the cost of these industries to a certain extent. For example, the cost of pulp in China's paper industry accounts for 70%, and 38% of the pulp is imported. Therefore, the appreciation of the RMB will significantly reduce the cost of the paper industry, thereby significantly improving the profitability of the paper industry.

In addition, the investment product industry can also benefit from it to a certain extent, mainly including industries such as real estate and park development with land value, coal, non-ferrous metals and other industries with resource value. Overseas funds may gain appreciation by investing in the land or real estate owned by companies in these industries, thereby increasing investment in these investment industries and causing prices to rise.

If the renminbi continues to appreciate, the real estate market will also be a beneficiary. A report from CB Richard Ellis shows that at least US$500 million has been invested in the mainland Chinese real estate market in the first quarter of this year, especially in properties with rental value, due to expectations that the renminbi will continue to appreciate. However, relevant persons believe that since most foreign institutions do not have a deep understanding of China's national conditions, in order to avoid market risks, they usually choose ready-made properties with stable cash returns as investment objects. The rational selection order is generally A High-end office buildings, high-quality serviced apartments, five-star hotels, high-end shopping malls, and finally residential properties with scattered property rights will be considered.