1. Appreciation reduces the competitiveness of traditional exports.
From April 2017 to the beginning of 2018, the RMB has been in a stage of appreciation. Obviously, appreciation is not conducive to exports, because it will make the same value of foreign exchange exchange for less RMB.
What are the benefits of RMB appreciation?
Data show that year-on-year export growth in July and August 2017 was 11.2% and 6.9% respectively, continuing to fall sharply from the first half of the year. The PMI new orders index also dropped from 52 in May to the current 50.4.
It can be seen that under the background that the macro environment such as the Sino-US game did not deteriorate at that time, this was mainly caused by the appreciation of the RMB.
2. Appreciation provides room for maneuver for monetary policy.
If there is downward pressure on the economy, the central bank will cut interest rates or reduce reserve requirements to stimulate the economy. However, cutting interest rates will make domestic interest rates lower than overseas, and profit-seeking capital will accelerate outflows, and the RMB will be under depreciation pressure.
Therefore, if the RMB is in the appreciation stage at this time, it can offset the expectation of depreciation.
In other words, in the context of RMB appreciation, the negative economic effects of cutting interest rates and reserve requirement ratios will be much smaller.
What are the benefits of RMB appreciation?
3. Appreciation is conducive to attracting funds and mitigating capital outflows.
The appreciation of the RMB means that fundamentals have improved, and stronger economic data will attract more international capital inflows, which will enrich domestic liquidity in the short term, which will be good for the stock market and real estate.
This inflow of funds can be reflected in the flow of funds heading north.
What are the benefits of RMB appreciation?
4. Appreciation is conducive to the development of midstream and downstream industries.
For upstream industries dominated by bulk commodities, the decline in the price of imported substitutes will squeeze out the market share of original domestic enterprises, such as imported soybeans, corn, etc.; for the processing industry, especially the midstream industry dominated by imported processing
The appreciation of the RMB makes imported raw materials cheaper and helps save costs; for downstream industries such as aviation and tourism, the appreciation of the RMB will reduce the burden of foreign currency liabilities such as the US dollar a lot, which is what we often call exchange gains.
5. Appreciation can promote domestic economic structural adjustment.
Previous development mainly relied on labor-intensive and export-oriented industries, and the profits of domestic companies have always been the "leftovers" of large multinational companies.
On the one hand, the appreciation of the RMB can force export companies to improve technology and take the initiative to innovate. On the other hand, it can reduce the import costs of import companies, promote the elimination of backward production capacity, and ultimately promote economic structural adjustment and improve China's position in the international division of labor.