China Focus Face to Face: What do you think of and how to deal with the sharp appreciation of the RMB?

(China Focus Face to Face) What do you think about the sharp appreciation of the RMB and what to do? 　　China News Service, Beijing, October 17th. Question: What do you think about the sharp appreciation of the renminbi and what to do? 　　——Interview with Tan Yaling, President and Chief Economist of China Institute of Foreign Exchange Investment 　　Author Li Jinlei Peng Jingru Cheng Chunyu 　　Rece

(China Focus Face to Face) What do you think about the sharp appreciation of the RMB and what to do?

　　China News Service, Beijing, October 17th. Question: What do you think about the sharp appreciation of the renminbi and what to do?

　　——Interview with Tan Yaling, President and Chief Economist of China Institute of Foreign Exchange Investment

　　Author Li Jinlei Peng Jingru Cheng Chunyu

　　Recently, the renminbi has continued to appreciate rapidly, which has attracted attention from all parties.

In the context of the ongoing global epidemic, what are the reasons for the sharp appreciation of the RMB?

What impact will it have on China's economy, financial market and people?

What is the future trend?

Tan Yaling, president and chief economist of the China Institute of Foreign Exchange Investment, accepted an exclusive interview with China News Agency "China Focus Face to Face" to analyze the recent sharp appreciation of the RMB.

Photo by China News Agency reporter Zhang Xinglong

　　Tan Yaling, president and chief economist of the China Institute of Foreign Exchange Investment, accepted an exclusive interview with China News Agency "China Focus Face-to-face" to give an authoritative interpretation.

　　The interview record is as follows:

Reporter from China News Service: In the past three quarters, the onshore renminbi rose 3.89% against the US dollar, the largest single-quarter increase since the first quarter of 2008.

When did this round of RMB appreciation begin?

　　Tan Yaling: Since the "Exchange Rate Reform" in 2005, the trend of the RMB against the US dollar has been "top 9 and back 7".

The “top 9” is a cycle of appreciation. From 8.11 yuan in the “exchange reform” on July 21, 2005, it rose to 6.03 yuan in January 2013, and the appreciation rate was close to 40%.

The RMB appreciates in a straight line at this stage, with very narrow fluctuations, and unilateral appreciation is very obvious.

　　The "Post 7" is from 2014 to the present. It is in the channel of depreciation. The most extreme is that it reached 7.18 yuan in September 2019 and 7.17 yuan in May this year. The total depreciation range is 20% to 25. %between.

Relative to the period of appreciation, its repairability has not fully reached equilibrium.

　　This round of RMB appreciation started in June and has not yet ended. The cycle is considered relatively long.

From this perspective, the entire international economic and trade relationship, including geopolitics, is still highly targeted and designed between the foreign exchange sector and currency competition.

China News Agency reporter: The RMB exchange rate fell below "7" in August 2019, but now the central parity of the RMB against the US dollar has risen to the 6.71 mark.

Under the impact of the new crown pneumonia epidemic, what are the internal reasons for this round of RMB appreciation?

　　Tan Yaling: The first reason for the appreciation of the RMB is that China's economy is improving.

The Chinese economy is now the only major economy with positive growth. People's confidence in the renminbi is increasing, which is a very important element of currency appreciation.

　　The second is that it has a relatively important relationship with China's reform and opening up. In particular, the opening of the securities market and the bond market is relatively fast, and the scale and effect are relatively good, which has attracted the attention of international investors.

Moreover, there are huge gaps in interest rates and exchange rates between China and the United States, and between China and other developed countries.

For example, the U.S. 10-year Treasury bond yield is about 0.6%-0.7%, and the Chinese 10-year Treasury bond yield is 3.2%-3.3%.

Since China’s economy is the first to recover, the economy is stable and the situation of resumption of work and production is relatively good, coupled with the accelerated opening of China’s financial market, international capital favors the Chinese market in terms of speculation, hedging and arbitrage. This superimposed effect has prompted a surge of funds. Enter the Chinese market.

　　The third is a particularly important relationship with overseas markets.

The RMB exchange rate quotation mechanism determines that overseas parameters are very important. The deliberate use of overseas borrowings cannot be ruled out. With the help of China's relatively good momentum and the effect of opening up, the suspicion of deliberately pushing up the RMB subjectively should arouse great attention.

China News Service: China’s exports in the third quarter hit a quarterly record high. Will the appreciation of the renminbi have a certain impact on China’s current good export momentum?

　　Tan Yaling: China’s export indicators are relatively good, which have a particularly important relationship with policy support, the relief of the entire overseas epidemic, and China’s position and influence in world trade. However, the current appreciation of the renminbi puts great pressure on foreign trade companies.

　　The Central Bank of China decided on the first weekend after the National Day holiday this year to lower the foreign exchange risk reserve ratio for forward foreign exchange sales from 20% to 0.

This adjustment was particularly timely and had a particularly large impact on the entire exchange rate market. The renminbi returned from the 6.7 yuan mark to a level below 6.7 yuan.

　　Because if 6.7 yuan rises further, the exchange rate of 6.6 yuan, 6.5 yuan, and 6.4 yuan is not suitable for China. Because of the cost line of foreign trade enterprises, state-owned enterprises may be 6.7 yuan and 6.8 yuan, and small and medium-sized enterprises may be 7 yuan and 7.02 yuan. Especially foreign trade companies may still be less than 7 yuan.

China News Agency reporter: Now that a large amount of overseas funds are flowing into China, is it possible to increase the pressure of domestic asset bubbles?

　　Tan Yaling: This possibility exists.

The renminbi has interest rate differentials and exchange rate differentials. The huge Chinese market and the credibility of policies, coupled with the sustainability of the economy, have formed a very good understanding of foreign capital, and capital speculation is inevitable. China should be more vigilant at this time.

　　Because of China’s existing financial market structure, mechanism, efficiency, and technology, there are still many shortcomings. The securities market is gradually opening up, and the registration system is also in full swing. The accuracy of international standardization and market system rules at the institutional and structural levels is still In the process of further upgrading and strengthening, it is inevitable that there will be some deficiencies.

For example, China does not have a complete foreign exchange market, it is still an inter-bank foreign exchange market, and overseas markets are completely liberalized. Therefore, regardless of transaction experience, technology, scale or influence, China is in a passive state.

Therefore, preventing related risks is particularly important for the future Chinese economy.

China News Service: The property market and the stock market are connected to financial security at one end and the common people at the other. Will the appreciation of the renminbi lead to an increase in housing prices?

What impact will it have on future stock market trends?

　　Tan Yaling: Do not worry about whether the appreciation of the renminbi will lead to an upward trend in housing prices.

　　The strength of any country does not depend on real estate. It is not in line with economic logic to expect that the rise in real estate can drive the Chinese economy.

In the past, China's real estate development was a bit overdone. Financial products such as bank loans were often linked to real estate, which added a lot of hidden dangers.

Now the central government’s tone for real estate regulation is "Houses are for living, not for speculation." It is very firm. The real estate is being fine-tuned and gradually adjusted. This consensus has basically been reached.

The argument of “using a house to make a family rich” has been basically eliminated. In fact, people who have invested in a house are also preparing and responding to this aspect.

　　Will RMB appreciation definitely stimulate the stock market?

Everyone sees this very clearly. This round of RMB appreciation has not stimulated the Chinese stock market. The Chinese stock market is still in a certain range, so there is no direct relationship between them, because the exchange rate is a price trade-off in foreign relations. The stock market is a basic manifestation of internal assets and economic fundamentals or corporate development. The two focuses are completely different.

Reporter from China News Service: Recently, there have been many discussions about "whether the RMB has entered a new cycle of appreciation". Some international investment banks predict that the RMB will appreciate significantly in the next 12 months, possibly to 6.5. What do you think of the mid-to-long-term trend of the RMB exchange rate?

　　Tan Yaling: The mid- to long-term trend is not easy to judge now.

First, the US election did not fall.

Second, Sino-US trade is still in an uncertain state.

Third, the results of the epidemic on the Chinese economy and the world economy are uncertain.

Although the latest forecast by the International Monetary Fund is positive, with the advent of winter, the possibility of the epidemic recurring is still relatively high. It is still uncertain how much the epidemic will have on the entire economy and trade.

　　It should be normal for the exchange rate of RMB to US dollar to fluctuate at a level below 6.7. As to whether it can return to 7, it is possible.

Because of the simplest logic: a big rise will lead to a big fall.

There is no way to change this technical logic.

Since June, the appreciation of the renminbi has not stopped, and it is also facing the repair of depreciation. It has to resolve certain risks, and the renminbi may be corrected in the direction of 6.8 and 6.9 depreciation.

China News Agency reporter: The RMB is currently the fifth largest international payment currency. Will the appreciation of the RMB against the US dollar affect the international status of the RMB?

Will the renminbi become an increasingly important anchor point in the global foreign exchange market?

　　Tan Yaling: The international status of the renminbi is first of all occupying the world in terms of credibility.

The renminbi is still a non-freely convertible currency, and it has been integrated into the SDR under the premise that it is not freely convertible. This is a world initiative.

This has a lot to do with the contribution made by China and the relatively high level of credibility.

　　But from the perspective of China's currency function, we should not compare with major developed countries, and have an accurate judgment on our currency positioning.

There is still a long way to go from developing countries to developed countries.

At the same time, to change from a non-freely convertible currency to a freely convertible currency, market value, market system, and market structure, including the knowledge and skills of market participants and international standards, are all facing eager learning, supplementation and improvement.

　　Although appreciation may be beneficial to the status and image of the renminbi, the negative effects of appreciation on the national economy and wealth loss and suppression are also worthy of attention.

China News Service: Since the beginning of this year, in the context of the impact of the new crown pneumonia epidemic on global trade, finance and economy, the cross-border use of the renminbi has remained resilient and has shown growth, but some US politicians have threatened to forcibly cut off the settlement of the renminbi, Hong Kong dollar and US dollar.

How should China respond to the emergence of such extreme situations?

　　Tan Yaling: This extreme situation is more threatening.

Because for the liquidity of the U.S. dollar, both the Hong Kong dollar and the RMB are very important support points.

If the liquidity of the U.S. dollar is at risk because of the Hong Kong dollar and the renminbi, will Americans trouble themselves?

This possibility is very small.

　　The U.S. dollar is very hegemonic and powerful, but we must also see that from the perspective of the U.S. economic background and economic structure, or economic logic, it is the country that lacks the most money.

Because the world's largest debtor country is the United States, which lives by borrowing money.

　　China is the largest country in foreign exchange reserves, of which the US dollar reserves account for the absolute majority, and the Hong Kong dollar is a linked exchange rate system, basically dominated by US dollars.

　　The debt scale of the United States has reached 27 trillion U.S. dollars. It faces a general election. If the relationship between the Hong Kong dollar, the renminbi and the U.S. dollar is severed, the Americans themselves will have trouble, and it will be a big trouble.

Therefore, there are more possibilities for deterrence and intimidation.

However, in the future, we still need to follow up and observe to improve risk warning.

China News Service: Recently, the People's Bank of China launched a digital RMB red envelope pilot in Shenzhen.

Some believe that the digitization of the RMB can greatly accelerate the process of RMB internationalization.

What do you think?

　　Tan Yaling: Digitization accelerates the process of RMB internationalization. This may be a path and a method, but we should strengthen the process of RMB internationalization in the true sense.

　　The advancement of digital currency may be an aid to the internationalization of the renminbi, but it cannot replace the internationalization of the renminbi. Therefore, the development of digital renminbi must maintain a rhythm and maintain a rationality. The ultimate free convertibility of the renminbi is the fundamental goal of the internationalization of the renminbi.