The RMB’s appreciation is “brake”: Export dependency and weak domestic demand exposure policy are difficult

The RMB has continued to strengthen in recent years, but Beijing is curbing the pace of appreciation through intermediate price and market guidance.Reuters on August 31.On the backdrop of the RMB’s three-and-a-half-year high against the U.S. dollar and its cumulative increase in value of about 9% over the past two years, the central bank of China still tends to avoid exchange rates rising too quickly to ease pressure on export companies and stabilize economic expectations.

This approach reflects a core contradiction of China’s economic policy: on the one hand, the huge trade surplus and export competitiveness provide the value-raising basis for the RMB; on the other hand, domestic consumption, credit and investment are still weak, real estate adjustment is not over, and capital outflow pressure has not completely disappeared.

Reuters quoted market sources as saying that the central bank of China has recently repeatedly placed the medium price of the yuan in a weaker position than the market expected, and state-owned banks have also been observed to buy in the United States.

The above-mentioned operation belongs to the market and media observation, and does not mean that the central bank has publicly announced the fixed target price of the people's currency.

Even more remarkable is that exchange rate policies are exposing the structures of the “weak internal strengths.” Export surpluses can push up the currency basics, but if households and lack confidence in domestic growth, funds will not automatically turn into consumption and long-term investment.

The International Monetary Fund has previously estimated that the RMB may be undervalued, but China has different opinions about it. Regardless of the model, whether the RMB is “undervalued” can not be judged by a single exchange rate level, but also consider capital control, poor interest rates, current accounts, productivity and policy intervention.

According to Focus China, the real question is not whether the RMB should rise or decrease, but why the Chinese economy is increasingly relying on policy management to balance the conflict between exports, capital flows and domestic demand.

In the short term, Beijing is likely to tolerate the slow rise of the RMB, but avoid unilateral rapid rise.The long-term trend depends on whether domestic demand can really recover, and whether export growth can continue under global trade friction.