Cheaper imports turned negative. The development of industrialization has increased the demand for imported machinery, metals and oil. In the past, we witnessed the rising prices of machinery, crude oil, copper and steel. A strong RMB will help offset some high-priced imported goods. With a relatively small trade balance, appreciation can help the economy, but it also has potential harm. The lower import price itself and the substitution shift to China have reduced the equilibrium price. Because a large number of imported products and their low prices can benefit consumer goods. More expansion and foreign investment. The appreciation of RMB will lead to less obvious consequences. On the other hand, greater purchasing power will increase the investment and overseas expansion of China companies. As China's foreign exchange reserves increased to US$ 56,543,804 billion in September 2004, China recently relaxed its capital outflow control to encourage foreign investment. The China Municipal Government hopes that 50 enterprises from China will be among the top 500 enterprises in the world before 20 10, and China's foreign direct investment should exceed 4 billion US dollars every year. Lenovo's recent acquisition of IBM's personal computer division will be the beginning of a series of overseas investments, which have increased by 50% since 2000. With the gradual disappearance of tariffs and foreign rights in enterprises, China businessmen still have to increase their overseas sales in the face of fierce competition. Protecting natural resources to meet the country's demand for raw materials and fossil fuels is also a top priority. The current value of RMB makes it very expensive for China enterprises to participate in foreign direct investment, so the government will try its best to ease the financial arrangement of this project. For example, Huwei Technologies, a telephone equipment manufacturer, recently obtained a credit line of US$ 654.38+00 billion to support its overseas expansion, but it would be better to encourage the RMB to strengthen than to make relevant investments through non-performing loans. Curb inflation. China's inflation rate recently dropped from a high of 5.3% seven years ago to last August. Due to the aggregation of various factors, the country is currently facing the possibility of uncontrollable inflation. The low savings rate encourages consumers to invest their wealth in real estate, while the rise in real estate prices provides a higher rate of return. High income drives the bud of marginal consumption, which leads customers to see strong demand for consumer goods. In addition, China's "one-child policy" has also increased inflationary pressure. A recent article in Fortune magazine found that this policy has produced a generation of only children. These new adults can't integrate into the difficult past of the Cultural Revolution in 2000. On the contrary, exposed to the new revolution, foreign culture and luxury brands have penetrated into the domestic market. Parents will not hesitate to provide them with more needs. At this rate, only a small increase in interest rates cannot curb inflation. Just like speakers, currency appreciation is very convenient in places where prices are overheated and liquid assets are surplus. Reduce foreign debt. The appreciation of RMB helps to reduce some of China's foreign debts denominated in US dollars. At present, China owes about $654.38+080 billion in foreign debt. The appreciation of RMB against other major currencies, especially the US dollar, actually reduces the value of its foreign debt. (Since June 2004, China's foreign debt of $220.98 billion, of which $654.38+080.47 billion is foreign bonds and $40.52 billion is commercial credit), the fixed market value of RMB is estimated to be underestimated by about 654.38+05% through NDF (non-deliverable forward). Assuming that the debt is calculated in US dollars, the external debt is about 15%, which actually reduces China's debt liabilities by about US$ 27 billion. With such a potentially powerful debt reduction mechanism, China may be able to fix the exchange rate at present, use a floating exchange rate in the future, artificially reduce its interest payment and principal repayment, and reduce RMB repayment through currency appreciation. Appreciation will force China's economy to become more productive. Although appreciation will definitely cost China's economy, it will also force China's economy to become more productive. China's current economy is too export-oriented, which will be dangerous. Take Japan as an example. Although it is the second largest economy in the world and one of the richest countries in the world, domestic demand has not been fully developed due to Japan's emphasis on exports in the past 20 years. Japan suffered from persistent deflation and three economic setbacks. Samuel Brittan, a respected economic columnist of the Financial Times, believes that "if this imbalance is allowed to persist for too long, deficit countries will pay more attention to the domestic industrial and commercial structure, while surplus countries will pay too much attention to exports ..... which will make the adjustment unnecessarily painful and difficult. In addition, when resources are transferred, there will be a high risk of transitional unemployment. " This is obviously why China must allow the RMB to float at that time, not later. If it takes too long, its economy will become too dependent on exports, and if global demand suddenly drops, it will generate huge transportation costs-which may lead to the depression of the overall economy. Through the appreciation of RMB, China can not only diversify its economy, balance domestic and export industries, but also improve the productivity of the export sector. Undoubtedly, the appreciation of RMB and the rising prices of related products will hurt China manufacturers. They will bear most of the costs with marginal profits. However, the appreciation of RMB will force the industry to compete by quality, rather than let it gain a competitive advantage because of the lower currency, so manufacturers will be more productive and efficient. In the long run, domestic enterprises and export enterprises can create higher value-added products and attract more wealth for China's economy. A hard landing hinders growth. However, a strong RMB will have some negative effects. China's economy depends on a large number of exports, and rural areas still need higher output to find employment opportunities for thousands of underemployed people. Many state-owned enterprises also employ surplus workers, and the International Monetary Fund predicts that unemployment will only get worse. For foreign buyers, a strong RMB will make China's goods more expensive, weaken the demand for products, and ultimately hurt exports. The decrease in income will make it more difficult for China enterprises to record profits. If they respond by firing existing employees or firing new employees, the unemployment rate will soar. At present, the economic growth exceeds 9%, but a slight decline in output may affect the labor market and its growth. Especially in the short term, a strong RMB will increase the cost of labor and foreign direct investment. The degree of influence depends on the suddenness of RMB appreciation, but it is difficult to conceive a solution that has no other influence to adjust the economy. Immature market-not good for hedge companies. China's financial market is too new and immature to cope with the rapid appreciation. Securities and futures were not introduced to China for the first time until 1980. Until the late 1990, the Shanghai and Shenzhen stock exchanges were established. Even so, they are basically tools for the China government to concentrate private funds on state-owned enterprises. The increase of WTO and the provisions of the agreement have stimulated real efforts to open up financial markets. China Securities Regulatory Commission has been encouraging companies to list in developed foreign markets. 1990 10 China futures market opened on 1990 10, and chaos was exposed in the following three years, with irregular contracts and unreasonable term, which was not handled well by the exchange. At present, only 12 futures can be traded, mainly agricultural products and metals. According to a report of China Securities Regulatory Commission, it is estimated that a sudden appreciation in April (such as pressure from other countries or speculators) will be a nightmare for countless enterprises with no hedging and immature finances. Of course, the government is aware of this problem and is trying to solve it. On March 1, the China Municipal Government announced a new regulation allowing foreign banks to directly trade derivatives with domestic enterprises. In the months since June, 10 foreign banks have obtained such licenses. The new regulations allow credit, fixed income and currency derivatives, and most importantly, hedging instruments. Very logically, Credit Suisse First Boston and ABN Amro Holdings seem to be among the top foreign exchange hedging instruments. Even if these products can be obtained in the near future, they need to be targeted at some point and properly protected by export-sensitive enterprises in China to avoid appreciation losses. The question is whether the government can successfully cope with the change of RMB exchange rate before China enterprises can adjust. Increase the value of bad credit in the banking system. Although the appreciation of the renminbi has reduced the government's foreign debt, it has increased the bad credit risk of the country's banking industry. Therefore, China's economy is not prepared to give up the fixed RMB security umbrella. There are quite a number of non-performing loans in China's banking system. Although there are motives to solve this problem, many non-performing loans are exported and bought by big American investors. This is still a problem to some extent. The appreciation of RMB will automatically increase the value of non-performing loans. At the same time, don't forget that the China government has a considerable amount of US dollar assets to fix the RMB. These properties will lose their proportional value because of the appreciation of RMB. Hot money will increase market volatility. In addition, huge speculative hot money has recently entered China. Once there is appreciation, investors feel that they have made enough profits, and these capitals will flow out of the economy. If the appreciation is too slow, hesitation may be a signal that investors estimate that a bigger appreciation is coming. If the pace is too fast, a lot of money may leave immediately. According to the rate of appreciation decided by the Bank of China, this may lead to a dangerous situation of capital outflow. In any case, fluctuations must increase. Many investors keep their investments in the market that has appreciated, especially because of the possible gains from non-monetary related means to economic containment.