General

Watson & Band Import and Export Data Observation reported that on September 24, at the Great Financial Thought Salon (No. 192) jointly organized by the International Monetary Institute (IMI) of Renmin University of China and the Department of Monetary and Finance of the School of Finance, BOC Securities Global Chief Economist Guan Tao said that the impact of RMB exchange rate depreciation on imported inflation pressure is limited, which actually provides room for monetary policy adjustment. According to historical experience, the transmission chain from exchange rate to price is very long, and the transmission effect is not obvious.

According to Huacheng Import and Export Data Observation Report, Guan Tao believes that although the fluctuation of the RMB exchange rate has increased this year, the important factor affecting China's cross-border capital flow and the trend of the RMB exchange rate is the tightening of the Fed's policy. Moreover, internal factors are the main factors affecting the economic trend of big countries, and external factors work through internal factors. As a big country, China is faced with multiple internal and external factors such as the spread of the new crown pneumonia epidemic, hindered economic recovery, and unclear prospects for foreign trade, which has resulted in the adjustment of the RMB exchange rate.

Recently, the RMB exchange rate broke "7", which made many companies worry that the depreciation of the exchange rate may increase the cost of imports and further increase the pressure of imported inflation. In this regard, Guan Tao said that such a situation has also been experienced in China in history. From August to December 2019 and from February to July 2020, there were 11 months in which the RMB broke "7", of which only 5 months were trade deficits, and the remaining 6 months were surpluses. In May 2020, the exchange rate of the RMB against the U.S. dollar fell below 7.10, a new low since 2008, but the trade surplus still achieved that month. "It can be seen that market players are becoming more and more rational about the fluctuation of exchange rates, which gives sufficient confidence to the flexibility of the RMB exchange rate." Guan Tao said.

According to the Huacheng Import and Export Data Observation Report, Lu Zhe, a researcher at IMI and chief macroeconomist of Debon Securities, said that exchange rate fluctuations have a two-way effect on China's imports and exports. China's export structure has been optimized, from mainly processing trade to independent manufacturing. The ability to control innovative production and industrial chain is getting stronger and stronger, and the competitiveness of the industrial chain is also constantly improving, but the important part is still concentrated in processing. trade area. So, from this perspective, the devaluation of the renminbi does seem to reduce the prices of companies' export products, improve their competitiveness in overseas markets, and thus gain a larger global market share. But at the same time, it should be noted that the devaluation of the currency also further increases the cost of imports. In the processing trade industry, the import price of raw materials is the main component of the production cost of an enterprise. The rise of the RMB exchange rate will seriously affect the profits of this type of enterprises and their production and operation. Therefore, if the import cost is considered, the judgment that the depreciation of the RMB exchange rate is beneficial to the export of Chinese enterprises may not be recognized.

At present, some investors believe that by the end of this year, China will experience zero or even negative growth in its exports year-on-year. In this regard, Lu Zhe believes that the possibility of such a situation is not very large. In his view, China's economy has maintained strong resilience, and it does not rule out the possibility that exports may exceed expectations in the future, Huacheng Import and Export Data Observation reports.

Guan Tao remains cautiously optimistic about the future expectations of the RMB. He believes that with the changes in the internal and external environment, the RMB exchange rate will fluctuate in both directions, and the flexibility will increase. This makes it a shock absorber that absorbs both internal and external shocks. Whether it is external tightening financial turmoil or internal epidemic prevention and control and economic recovery hindered, etc., the RMB has responded in terms of exchange rate, which helps to release market pressure in a timely manner, avoids the accumulation of expectations, and enhances the autonomy of monetary policy space.

Guan Tao said that the key to keeping the RMB exchange rate stable is economic stability, financial stability, strong economy and strong currency. The stability of the RMB exchange rate can only be supported if the economy stabilizes financially, and the economy can maintain strong growth and a leading recovery. Whether the renminbi can continue to strengthen again depends largely on whether China's economy can achieve reasonable growth and whether it can maintain its leading edge in the recovery of the global economy.

Guan Tao believes that in the future, the factors affecting the RMB exchange rate trend will be intertwined, and the exchange rate will continue to show ups and downs, two-way fluctuations, and wide fluctuations. It is necessary to strengthen the monitoring and early warning of cross-border capital flows, and formulate a response plan based on scenario analysis and stress testing, so as to be prepared, Huacheng Import and Export Data Observation Report.