1. Real effective exchange rate According to IMF estimates, the nominal effective exchange rate of the RMB relative to other major trading partners fell by 6% in 2002. According to calculations by Hu Zuliu (2003), the U.S. dollar dropped from its highest exchange rate in February 2002.

By June 2003, the real effective exchange rate of the RMB had dropped by 11%.

Since China implemented major reforms of its exchange rate system in 1994, according to calculations by international organizations, the RMB has been undervalued.

2. Purchasing power parity "Purchasing power parity" theory is an important theory of exchange rate determination.

This theory believes that purchasing power parity (PPP) refers to the exchange rate between two currencies within a certain period of time. It is determined by the quantity of goods and services that the two currencies can purchase in the country.

That is to say, the exchange of domestic currency and foreign currency is essentially the exchange of the purchasing power of domestic currency and foreign currency. The long-term equilibrium exchange rate is determined by the comparison of the purchasing power of domestic currency and foreign currency.

The "Human Development Report" released by the United Nations Development Program (UNDP) shows that in 2005, China's per capita GDP was 1,352 US dollars based on the nominal exchange rate, but if converted based on the purchasing power parity method, it was 5,791 US dollars. That is, the nominal exchange rate was higher than that calculated on the purchasing power parity basis.

The RMB exchange rate is undervalued by 4.06 times.

3. Balance of payments "Balance of payments determinism" believes that a country's balance of payments situation is one of the most direct factors affecting the exchange rate.

When a country has a large international balance of payments deficit, the demand for foreign exchange is greater than the supply of foreign exchange, and the domestic currency will depreciate externally; conversely, it will cause the domestic currency to appreciate.

From the perspective of international balance of payments, my country's current account and capital account balances have maintained a large surplus since the integration of the RMB exchange rate in 1994.

Especially in recent years, my country has become the world's largest capital inflow country, with annual FDI reaching about US$50 billion.

This double surplus situation of current account and capital account has caused my country's foreign exchange reserves to rise steadily in recent years, and has exceeded the reserve level required to meet normal payments.

Therefore, depending on the balance of payments situation, the RMB will also have an appreciation trend.

Extended information: Related impacts 1. Expand domestic consumers’ demand for imported products so that they can get more benefits.

The most obvious change brought about by the appreciation of the RMB to domestic consumers is that the RMB in their hands becomes “more valuable”.

If you study or travel abroad, you will spend less money than before; in other words, with the same money, you will be able to do more things than before.

If you buy imported cars or other imported products, you will find that their prices have become "cheaper", thus providing more benefits to the people.

2. Reduce the cost burden of imported energy and raw materials.

Our country is a resource-scarce country. As international energy and raw material prices continue to rise, domestic enterprises are bound to bear an increasingly heavy cost burden.

In 2004, the average price of refined oil imported into my country increased by 30.8% compared with 2003, steel increased by 43.7%, copper increased by 50.4%, and iron ore more than doubled.

3. Use the "reverse force mechanism" to promote the adjustment of my country's industrial structure and improve my country's position in the international division of labor.

For a long time, our country has relied on the expansion of the quantity of cheap labor-intensive products to implement an export-oriented strategy, which has prevented the export structure from being optimized for a long time, making our country play the role of "the world's wage earner" in the international division of labor.

Appropriate appreciation of the RMB will help promote export enterprises to improve their technical level and improve product quality, thereby promoting my country's industrial structure adjustment and improving my country's position in the international division of labor.