The Chinese needs to gradually allow the RMB to become a reserve currency, so that it will go up in value. Some experts predict the RMB will go up 200-300% in the future.
Seems like you are still quite in-confident, are you?
What makes you confused? You are not confident about the quality of the Chinese product, or the mechanism of the inflexibility of China currency, or you are just doubting the consiparacy behind the USD?
I will say, keeping pace to gradually increase (70% of the annual growth minus the inflation rate) the value of RMB will adequately promote the best interest of China...
Remember not to squeeze every bit of juice from the prey, they are not as strong a ...
lo_pak 發表於 2011-4-19 20:32
Sorry, I do not quite understand what you are trying to say. Do you mind to explain the reasons why allowing RMB to rapidly grow in value is for the interest of China?
China is called the “world factory” for the given fact that it is built based on labour-intensive industries which can no longer survive in developed countries. This model has provided China a miraculous economic growth over the past 30 years. However, this is not a sustainable model to continue to carry on into the future.
I know a few financial controllers or CFO of the subsidiaries of multi-national corporations in China. They shared their concerns of the rapid increase of operational cost, especially the growth of labour cost. Therefore, it could be better off to establish the manufacturing base in other countries such as Vietnam which demands a much lower cost. Vietnam has been trying to replicate the China model to attract foreign investments and it is not hesitating to offer even more attractive policies to allure foreign companies to move their manufacturing bases to Vietnam. I do not see how a stronger RMB will help China in term of competitive strength against its rivals.
That is the reason why China has been putting in great effort trying to transform its economic model since it understands clearly that it must either transform or just dies dry gradually.
Another example of negative impact is to domestic businesses which depending on foreign export contracts. I know a few of Hong Kong business people who have factories in China and exporting their products to foreign countries and US market is their ultimate client. They have been complaining the stronger RMB is killing their future. Manufacturing businesses traditionally earn a low profit margin and it makes money by volume. Their contracts normally signed in USD and lock in multiple years and fixed price with a small room for adjustment mainly based on inflation. They normally have to bear very strict payment term and 3 – 4 months is considered standard. Any increase in exchange rate will have a deep bite into their profit. A very long payment term makes them even more vulnerable to any fluctuation of exchange rate.
That is the reason 溫總理 has said an increase of 20% will force many domestic companies out of businesses.
Grandfather is caught between a rock and a hard place when it comes to the valuation of the RMB.
On one hand, export and manufacturing businesses (esp those in SE China) risks losing their shirts each time the RMB's value goes up. Quotations are often billed in USD, and the factories have to honour their quoted prices for a period of time. Each time the RMB goes up in value, it eats into their already razor thin profit margins. As the RMB continue to face upward pressure, these factories may end up losing money on their contracts. Increasingly, factories are moving towards shorter quotation periods, or they try to quote their prices in RMB instead of USD to prevent losses due to the exchange rate. Still, as RMB goes up, businesses may choose to source their products from elsewhere instead of purchasing from China. For certain low-skilled manufactured goods, Chinese-made products are no longer enjoying the price advantage they once had. Corporations are buying from other countries in S.America, and SE Asia instead.
On the other hand, the RMB continues to face upward pressure because it really is undervalued. Countries are slapping tariffs on ultra-low priced Chinese goods and taking matters to WTO to sue the Chinese government for value manipulation. Instead of having tariffs levied on Chinese-made products, it is at least somewhat smarter for China to have the RMB appreciate instead. That way, at least the Chinese citizens can capitalize on the stronger RMB's purchasing power instead of having that money channeled to other countries as tariffs and levies. But then when the RMB appreciates, things go back to paragraphy #1 and end up hurting the export sector.
I certainly do not envy Grandfather's financial planners and policy makers.
Grandfather is caught between a rock and a hard place when it comes to the valuation of the RMB.
On ...
Lik 發表於 2011-4-19 22:21
hahaha, that is why you don't understand finances. If the RMB goes up in value, what will happen? Chances are most currencies in other developing countries will also go up big.
You need to understand that if China, the big guy on the block, starts dumping $US or at least stop buying as much $US, all the other smaller guys will panic and follow suit.
As a result the $US will crumble much quicker against most currencies.
Will Chinese factories lose their competitiveness? Not when most other developing countries' currencies also go up at the same time.
But the Chinese products are moving up the value chain rapidly, so that they no longer compete based on low prices.
In addition, the Chinese are rapidly developing their own local consumption market so that they no longer depend as much on exports.
As there are no other viable alternative for $US assets (Japan bond or Euro bond are even worse investments) in the short term, what China will continue doing is to use their $US to secure their supply of oil and natural resources.
The Chinese strategy of gradually allowing the RMB to go up and becoming a reserve currency is just brilliant.
發表於 2011-4-19 14:04
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