General

A few days ago, Sheng Songcheng, a professor at the China Europe International Business School and the former director of the Survey and Statistics Department of the People's Bank of China, said in a speech that the RMB has appreciated by 8% this year, which has a greater impact on enterprises, but it will depreciate after the second half of next year.

u3000u3000 Sheng Songcheng said that the renminbi has appreciated rapidly recently, probably this year’s appreciation has exceeded 8%, which has a relatively large impact on export companies. But then, it is expected that after the second half of 2022, the RMB will not face the pressure of appreciation, but the pressure of devaluation. The reasons given by Sheng Songcheng include the following three aspects:

u3000u3000 First of all, the spread. Sheng Songcheng believes that this is the most direct reason. The spread between the 10-year US Treasury bond and China's 10-year Treasury bond is now between 1.3-1.4%, and the highest is more than 2%. There will be a large amount of capital inflows due to favorable margins, especially into China’s stock and bond markets. Although deposits and loans have basically remained unchanged at present, the capital inflows into the stock market has risen in waves, while the capital inflows into the bond market has basically appeared. Straight up. This is caused by the difference in interest rates between the two countries and has also had an impact on the RMB exchange rate.

u3000u3000 The second reason is the recent fall in the US dollar index.

u3000u3000 The third is China’s trade surplus. China’s trade surplus in the third quarter of this year accounted for 19% of the overall GDP growth rate, while investment was only 15%. It seems that this has never happened before in history, and this situation will continue.

u3000u3000 Sheng Songcheng believes that the above three reasons have caused the RMB exchange rate to continue to rise this year.

Next, Sheng Songcheng introduced the upcoming TAPER in the United States. He said that although the United States is not raising interest rates now, as liquidity shrinks, US market profits will rise, and the interest rate gap between China and the United States will shrink. It is very likely that what China is encountering is not what it is now. Such a large inflow of capital is a risk of capital outflow. If there is a large outflow of funds, it will cause pressure to depreciate the renminbi.

u3000u3000 Then, under such expectations, what should China do?

Sheng Songcheng said that China has always maintained a prudent monetary policy and a proactive fiscal policy. Under such expectations, it is even more important to maintain our monetary policy, which is called a normalized monetary policy, and that easing can no longer be carried out. If an easy monetary policy is implemented, The pressure on the RMB exchange rate and capital outflow will be even greater.

u3000u3000 Second, the implementation of proactive fiscal policies should be accelerated. Sheng Songcheng gave an example: the issuance of special bonds by local governments is actually an important part of the proactive fiscal policy. This year's local government special bonds only issued 37% of the annual amount from January to July. The issuance ratio in the same period in 2019 is 80%, and the issuance ratio in 2020 is 60%. It shows that the issuance speed was relatively slow some time ago, but the issuance has accelerated since August. So far, this year's local government special bond issuance accounted for more than 75% of the annual issuance.

u3000u3000 Sheng Songcheng believes that on the one hand, maintaining currency normalization, on the other hand, speeding up the implementation of proactive fiscal policies, this should be our response.