The Report On RMB Appreciation

3TheReportonRMBAppreciationSubmittedto:StateCounselPreparedby:Edith(Chinesename)Tel:[phone]Email:[e-mail]:April2010WORDS:3020Contents4CONTENTSⅠ.Summary……………………………………………5Ⅱ.Introduction…………………………………………6Ⅲ.MainFindings………………………………………6Ⅳ.Conclusion…………………………………………14Ⅴ.Recommendation…………………………………15Ⅵ.References…………………………………………16Ⅶ.Appendix……………………………………………17Summary5SUMMARYTheaimofthisreportistoanalyzetheeffectsofRMBappreciationmustormaybringabouttoChina’sdevelopment.MainfindingsbasedonSWOTandPESTLEanalysesaremainlyasfollows:1)AstrongerYuanwouldavoidatradewarbetweenChinaandotherconcerningcountries,especiallytheUS.FurthermorethestatusofRMBwillberaised.Ontheotherhand,itmayalsomakeChinasuccumbtoexternalpressureduetoitsconcession.2)RMBappreciationwillfueltheimportsatthesametimedestroytheexport’senterprises.Meanwhileitbringsachanceoftechnologicalinnovation.3)RMBappreciationwillincreaseChinesehousehold’spurchasingpower.Owingtothat,theentertainmentindustriesmightbestimulated.However,itwillbringaboutproblemsofspeculation,deflation,andunemployment.4)RMBappreciationwillhavewideinfluenceongovernment’sreformsuchaswelfareprojects,education,taxrevenuepolicy,lawsandenvironment.ItisshownthatChinaisfacingtheproblemofrevaluatingitscurrencyRMB,whichbearsbothprosandcons.China’srealproblemonimbalanceisn’titspegtothedollarbuttheYuan’slackofconvertibilitytoothercurrenciesandcapitalcontrols.Therefore,itisrecommendedthatpolicy-makerstakeallfactorsintoconsiderationandrevaluateRMBgraduallyandsteadilyattherighttime.Meanwhile,relevantreformmeasuresonthecountry’sdevelopmentshouldbeconsideredseriously.IntroductionandMainFindings6INTRODUCTIONThisreportaimstoshowtheeffectsthattheactionofrevaluingRMBmustormaybringabout.TheanalysesofbothSWOTandPESTLEwillbemadeuseoftoillustratethefindingswhicharebasedonwidelysearchingontheinternetandfromnewspapers.MAINFINDINGSFindingsbasedonSWOTanalysisSTRENGTHSItisobviousthatRMBappreciationwillfuelthecountry’simports.Residentswouldbemorelikelytobuythingsoverseaswhicharerelativelynotexpensive.Ontheotherhand,it’sanopportunityforthecountrytoreleasethelong-termexistingover-dependenceonexportssinceitseverelydamagethebalanceofthecountry’seconomy.Duetothereductionoftheforeigntrade,especiallytheexports,non-tradedbusinessessuchasservices,whichtendtobelabor-intensive,wouldbeinahighfavor.Meanwhile,theeconomicadvantagealongthecoastwillnotbesuchconspicuousanymore.Thedevelopmenttrendwillbetransferredfromthecoasttotheinlandwhichwillbringbenefitstotheinlandeconomy.Itisapparentthatcurrencyappreciationinfluencesthestatusofthecountry.Inthefirstplace,thecountry’sforeigndebtwillberelativelyreducedowingtoMainFindings7theappreciation.ThenasthestatusofRMBisraised,thestatusofChina’seconomywillbeimproved.Furthermore,therankofGDPofthecountrywillalsoberaised.Itseemsthatcurrencyappreciationcanlessenthepressureoneconomicdevelopmentaccordingtoaraisedstatusandlowerdebt.WEAKNESSESThedamageofexportenterpriseswillbeextremelyapparentundertheshadowoftheRMBappreciation.Theexportswillfallandindustriesrunatradesurpluswhichmaketheirlivingharderandevencausebankruptcy.Thefollowingproblemmustbetherisingunemploymentrateasthecompetitivestrengthofindustriesareleveleddown.Thegovernment’staxrevenuewillbereducedduetothefewerprofitsfromexports.Therefore,thegovernment’sinvestmentandwelfareprojectswillbeseverelybadlyinfluencedduetothelowertaxrevenue.Thisconditionshouldbenodoubttoshowastrongdamageonthelong-termdevelopmentofthecountry.OnaccountofChinaasalargeexportscountrythatmanyproductsaresigned“madeinChina”,oncetheRMBisrevalued,theglobalrecoveryandconsumersmustbehamperedduetoclimbingcostsforkindsofgoods.Foreignexchangereserveswillbedevaluedatthesametime.OPPORTUNITIESItisknownthattheUSislikelytolabelChina“currencymanipulator”(Reference3)andforcetoopenChina’sdomesticmarket.Bydeclaringthat,theMainFindings8USmightslapadditionaltariffsandpunitivemeasuresoradoptprotectionisttrademeasuresonChina’simportswhichcouldslackenthepaceofChina’seconomicdevelopment.TheappreciationofYuancouldavoidsuchtradewarbetweenAmericaandChinaandappeaseothertradingpartners,aswell.Atthesametime,tariffsmightdecline.TheRMBappreciationmeansthatChinesehousehold’spurchasingpowerwillbeincreased.ItwillhelpChinabyrebalancingitseconomytowardsdomesticconsumption.ItwillalsomakeiteasiertocontrolinflationifthegovernmentcouldgiveChina’scentralbankafreerhandtoraiseinterestrates.Thetouristindustrymightbestimulatedgreatlyforcitizensgetmuchsparecashintheirhandswhichcanaroseinterestsintravelingandotherentertainingactivities.Itissaidthatthereexiststheeternalbenefitsofcurrencyappreciation,butuntilnownoexplicitsignhasbeenfoundatthispoint.THREATSThecurrencyappreciationwilldoharmtojob-creatingexporters’industry,whichleadtoahigherunemploymentrate.Theunemployedpeoplemightcausesociety’sinstability,suchaswelfareproblems,thewideninggapbetweenrichandpoor,theproblemsaboutpeasantworkersreturning,andsocialpanic.Ahighunemploymentratemayalsocausetheproblemofpayingdelay,whichissimilartothesituationofcreditcrisisin20