1) First of all, we should understand what "capital inflow" means that foreign capital such as USD and GBP enters the China market and is converted into RMB.
Japan's low interest rate should not lead to the inflow of foreign capital. I don't know if you know that you will go back to Lebanon after your studies. Japan's low interest rate should mean that the borrowing interest is low and the cost of borrowing yen is low. There is no need for foreign capital to flow into Japan or convert it into yen to borrow money. In addition, low interest rate also means low deposit interest rate. Because of the low deposit interest rate, foreign capital will be converted into Japanese yen, and then bank deposits will be released to collect low interest rates. Theoretically, Japan's low interest rate should make capital flow away, and similarly, high interest rate will make capital flow in.
But my brother knows that raising interest rates will make the RMB appreciate and foreign capital (like the US dollar) depreciate. Why is there an article saying that there will be interest rate hikes and capital inflows?
2) Raising interest rates is the premise, capital inflow is the process, and RMB appreciation is the result.
Because "raising interest rates" means that RMB interest deposited in banks will increase, many foreign investors will convert it into RMB and put it in banks to collect interest. Everyone is trying to change into RMB, so the RMB will appreciate.
The situation is the same as that of the New Zealand dollar and the Australian dollar. Interest rates are high, and each is vying for the country's currency, which makes the exchange rate rise.
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Assets, you want to return.
If my interest return in the United States is 5% and my interest return in China is 3%, assuming other things remain unchanged, and if my return in China rises by 1% to 4%, assuming that there are only two markets to replace it, the funds in the United States market will be reduced and will be invested in the China market, leading to the inflow of foreign capital. The solution will invest 4% of the market and give up 5% of the market, which is a problem of other factors. People sell dollars and buy RMB, which leads to an increase in demand and an increase in the relative exchange rate of RMB.
Debt means that the flatter the cost, the better.
Low interest rates can reduce costs, so companies are willing to borrow money, but this is a problem of borrowing, not the return of assets.
As a foreigner, you have100000 yuan. If the return is high, you will invest in China. If the return on interest is low, you will borrow money instead of investing in assets.
An example of Japan's low interest rate problem is that foundations borrow yen to buy other high-interest currencies and carry out arbitrage activities.
So this is the relationship between assets and liabilities. ,