A few days ago, Sheng Songcheng, a professor at China Europe International Business School and former director of the Survey and Statistics Department of the People’s Bank of China, said in his speech that the RMB has appreciated by 8% since the beginning of this year. It will have a greater impact on businesses, but it will depreciate after the second half of next year.
Sheng Songcheng said that the RMB has appreciated rapidly recently, and the appreciation rate this year has probably exceeded 8%, which has a relatively large impact on export companies. But next, it is expected that after the second half of 2022, the RMB will face not appreciation pressure, but depreciation pressure. The reasons given by Sheng Songcheng include the following three aspects:
The first is the interest rate difference. Sheng Songcheng believes that this is the most direct reason. The interest rate difference between the U.S. ten-year Treasury bond and China’s ten-year Treasury bond is now It is probably between 1.3-1.4 percentage points, and the highest is more than 2 percentage points. Because of the spread, there will be a large amount of capital inflows, especially into China’s stock market and bond market. Although there are basically no major changes in deposits and loans, the capital flowing into the stock market is rising in waves, while the capital flowing into the bond market is basically rising. Straight up. This is caused by the interest rate difference between the two countries and also has an impact on the RMB exchange rate.
The second reason is the recent decline in the U.S. dollar index.
The third is China’s trade surplus. China’s trade surplus in the third quarter of this year accounted for 19% of the entire GDP growth rate, while investment was only 15%. It seems that this has never been the case in history, and this situation will continue.
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 has not raised interest rates now, as liquidity shrinks, profits in the U.S. market will rise, and the interest rate differential between China and the United States will rise. It will shrink. It is very likely that what China will encounter is not the massive inflow of capital as it is now, but the risk of capital outflow. If there is a large outflow of funds, it will cause pressure for RMB depreciation.
So under such expectations, what should China do?
Sheng Songcheng said that China has always maintained a sound monetary policy and a proactive fiscal policy. Under such expectations, we must maintain our monetary policy, which is called a normalized monetary policy. If further easing is carried out, if the monetary policy is loosened, the pressure on the RMB exchange rate and capital outflow will be greater.
Second, the implementation of proactive fiscal policies should be accelerated. Sheng Songcheng gave an example: The issuance of local government special bonds is actually an important part of proactive fiscal policy. This year’s local government special bonds were issued only 37% of the whole year from January to July. The proportion of issuance in the same period in 2019 was 80%, and the proportion of issuance in 2020 was 60%. This shows that the issuance speed was relatively slow some time ago, but it has accelerated since August. So far, the issuance volume of local government special bonds this year has accounted for more than 75% of the annual issuance volume.
Sheng Songcheng believes that on the one hand, maintaining currency normalization and on the other hand, accelerating the implementation of proactive fiscal policies should be our response.
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