The yuan's exchange rate has soared, becoming a haven for global capital

 Unconsciously, the RMB exchange rate has risen from 7.18 to 6.74, up a lot. On the one hand, the rise of the RMB exchange rate shows that the United States has unlimited printing of banknotes and the value of the United States dollar has been reduced, on the other hand, China has taken the lead in controlling the epidemic situation, restoring economic growth and becoming a safe haven for global funds. But attention should also be paid to the impact on exports of rising renminbi exchange rates, and hot money inflows will increase the risk of volatility in domestic capital markets. From the bottom of March, the yuan rose from 7.18 to 6.74, up 4400 basis points, and rose 3.71 percent in the third quarter, the best quarterly performance in 12 years, after the 2008 financial crisis.

The RMB exchange rate rose sharply, corresponding to the decline of the dollar index. Since the outbreak, the Fed has been printing money to save the market, making the dollar liquidity flood, the dollar value naturally reduced, the rise in the renminbi is understandable. Since the outbreak of the new crown, the United States Congress has passed four stimulus packages, allocating nearly $3 trillion. On Oct.1, the U.S. House of Representatives voted to pass a new $2.2 trillion stimulus package. Imagine that ordinary American who don't have to work in the epidemic receive higher wages than Chinese white-collar workers, and someone must pay for the money. At the same time, China's first control of the epidemic, economic growth, but also make our country a safe haven for global funds, now the only investment in China is safe, only Chinese factories are fully resumed production. At present, the second wave of the epidemic situation in Europe and the United States has arrived, but our country dare to let go of control, the introduction of 8 days of National Day Mid-Autumn Festival holiday to stimulate the economy, Western countries can only envy and hate. To control the epidemic situation is, on the one hand, vaccine research and development, China's vaccine has entered the third phase of clinical trials, in the existing large number of clinical data, no one has side effects, the effect is very obvious.

But we should also guard against the negative impact of the rise in the RMB exchange rate on the economy. The rise in the RMB exchange rate will inevitably reduce the relative competitiveness of Chinese export enterprises, plastic injection molding business already face such a problem now. Japan was forced by the United States to raise the yen exchange rate, which greatly hit the export competitiveness of Japanese goods. In the end, Japan's economy fell into recession for 20 years. Even now, the GDP of 2019 in Japan has not exceeded the level of 1995.

Of course, the sharp appreciation of the RMB exchange rate, exports will certainly be hit. As Cnmoulding, now injection molds order is lower than before. However, since the outbreak, China's export situation has been improving and even positive growth has occurred in August, mainly because of the unparalleled superiority of our domestic perfect supply chain system under the great destruction of the global supply chain. Manufacturing in many countries has been hit hard by the epidemic. The impact of the RMB exchange rate on China's exports must at least wait until the epidemic is controlled. On the other hand, the inflow of hot money into the country will also aggravate the turbulence in the domestic capital market. The characteristic of hot money is that it comes and goes quickly, and if the Fed's policy changes, the enthusiasm will flow out quickly. The domestic stock market will fall into violent shock in a short time, this is also bad. Similarly, at the beginning of this year, the stock market in the United States fell into a continuous fuse, also because of the huge impact of the epidemic on the economies of various countries, countries have withdrawn funds from the United States market, the result of the withdrawal of hot money. A rise in the RMB exchange rate means that the value of the RMB is recognized by the international market, and the exchange rate rises by 5%, which means that the GDP has increased by 5%, and the overall national strength of our country is bound to rise. But we should also pay close attention to export competitiveness and the flow of hot money, control the rhythm.

Increased costs of enterprises with RMB rising and falling

 The yuan rose again, rising to 6.73 on September 17, a record high after April 2019.

Deviations from the present value of the exchange rate from depreciation expectations

CNMOULDING post that the renminbi depreciation expectations increased, as recently as the renminbi appreciation, here mold manufacturing economic enthusiasts try to explain as clearly as possible the difference between depreciation expectations and exchange rate present value.

1) depreciation expectations. 

The exchange rate depends on the relative strength between the two currencies, and the depreciation expectation is the possibility that the market thinks one currency will depreciate against another in the future. Interest rate parity relationship, if the market believes that a country's currency has depreciation expectations, then capital outflow arbitrage will promote its currency interest rate rise, until the arbitrage space disappears, interest rate rise can compensate for depreciation expectations. Therefore, depreciation expectations can be accurately measured by fluctuations in the spread between the two currencies. Although the current RMB exchange rate is basically flat with April 2019, the Sino-US spread has expanded from about 60 basis points at that time to the current 246.9 basis points. This is a significant increase in depreciation expectations data quantification.

2) the present value of the exchange rate.

 Exchange rate present value = depreciation expect other effects (spread, central ticket, consumption of external storage hard pull, regulation, etc). The present value of the exchange rate covers depreciation expectations but is different from depreciation expectations. The depreciation expectation does not necessarily depreciate, other effects can cover the depreciation expectation, the exchange rate will not depreciate but also appreciate, which is the reason for the current RMB appreciation.

 However, if the means of maintaining the exchange rate without depreciation are not sustainable, the depreciation expectation will be a grey rhinoceros risk, but the risk landing will be affected by the dual influence of control ability and market sentiment, and the mood will be changeable. is changeable.

Deviations from foreign exchange reserves and foreign exchange holdings

 For foreign exchange reserves and foreign exchange accounts, there are similar deviations.

 China's foreign exchange reserves rose $10.218 billion in August, according to dollar-denominated outgoing reserves.

But the central bank's foreign exchange share shows that in August, the foreign exchange share decreased by 3.825 billion RMB, and the foreign exchange account for 7 consecutive drops!

Generally speaking, changes in foreign exchange reserves = changes in the nominal value of foreign exchange assets.

 A decline in foreign exchange accounts for a real outflow of foreign exchange; the increase in foreign exchange reserves is a rise in nominal value in dollars (but in SDR, the nominal value of foreign exchange reserves is reduced).

 The 7 consecutive decline in foreign exchange is the performance of the continued flow of foreign exchange, is a further confirmation of depreciation expectations!

External promotion

After that, the yuan has appreciated 3.2 percent of the dollar, that is,3.2 % of the external appreciation; after that, the previous August CPI average 3.53 %, that is, the internal depreciation 3.53%.

And the U.S. CPI average of 1.2% in the previous August, it was clear that the dollar's purchasing power fell less than the renminbi.

In terms of purchasing power parity, more currencies with lower purchasing power have the potential to depreciate (which is why the renminbi is expected to depreciate), but in fact, the renminbi has risen by 3.2 percent.

For export enterprises, this year's rise and decline will increase the cost of enterprises by 6.73% macroscopically, and the survival rate of export enterprises will be greatly tested. For example, our injection mold manufacturers and plastic injection products supply companies use overseas markets to cook this deviation will suppress export earning capacity, resulting in this deviation trend can not be sustained.

How can foreign trade enterprises save themselves after the sharp appreciation of the RMB?

"I don't want to settle my foreign exchange! But fear of further appreciation ."

 Faced with a sharp appreciation of the yuan, hit a new high in more than a year, CNMOULDING precision mold companies quite contradictory.

 Since the usual orders are settled 90 days after shipment, and the exchange rate between the dollar and the renminbi at the time of the order is still about 7.1, it now fluctuates to about 6.8, with a direct loss of 4%," net profit was suddenly appreciated to rise ".

 Under the impact of anti-globalization and global epidemic, the already complex foreign trade situation is becoming more and more severe. The recent sudden appreciation of the RMB has made its foreign trade business worse.

 Although exchange rate fluctuations are a familiar risk for foreign trade companies, under heavy pressure, falling straw also becomes heavy.

 Loss of net profit and difficulty in raising prices

For foreign trade products such as plastic injection molding products, the appreciation of the RMB by 4% is a direct net profit from most orders.

 Foreign trade orders for plastic products are in June ~ August, while foreign exchange settlement peak is after September. This also means that when large-scale orders were placed, the yuan was about 7.1 against the dollar, and by the time the foreign exchange settlement was directly more than 6.8, the magnitude of the loss could be imagined for commodities such as plastic products.

 In order to cushion the exchange rate risk, the company will usually take some export products to lock foreign exchange measures," this sudden appreciation of the renminbi is somewhat unexpected, appreciation speed is also relatively fast, many have not had time to lock foreign exchange ."

 Lock foreign exchange refers to forwarding settlement and sale of foreign exchange business, that is, determine the exchange price before, the actual foreign exchange income and expenditure occurred after. In order to reduce the impact of exchange rate fluctuations, some foreign trade companies will adopt the method of locking the exchange rate in advance to reduce the risk of two-way fluctuations.

 However, the lock itself also has the risk, in the future exchange rate trend is relatively clear and stable, the company can lock the exchange rate in advance to reduce the loss caused by the exchange rate rise or fall. But if the judgment is not accurate, the lock will affect the profit instead.

 A few years ago, the trend of the renminbi suddenly changed from appreciation to a sharp depreciation, we were caught unprepared, but also let them hold an emergency meeting, immediately stopped the lock-in operation.

Search in danger

 Compared with the export of traditional industries such as clothing and textile, the export of products such as bicycles and laptops in the epidemic situation has risen against the trend and even ushered in a blowout, which has given them some initiative.

 Yiwu Longda vehicle business operator Wu Yaping told the first financial reporter, this year is the best year in 20 years of business, and the past New year and Christmas before and after the peak season, this year since May has been the export season. The market in short supply allows them to choose ways to facilitate their transactions, such as all orders are settled in renminbi.

 "Because of the uncertainty of the overseas epidemic, we are worried about the impact on the settlement of foreign exchange, so we all set up a settlement in RMB, and don't worry about exchange rate fluctuations ." Wu Yaping told reporters that some customers want to do a letter of credit, was also rejected. According to her estimate, exports this year are at least three times those of last year.

 As an early exporter of electric bicycles, Suzhou Mengshi Intelligent Vehicle Technology Co., Ltd. increased its exports by 2.5 times in the second quarter. For them, the fastest-growing overseas market in the United States, followed by the European region.

 Although the industry is growing against the trend, factors such as the epidemic and the US election still have a greater impact on the company's overseas services, and the future situation is difficult to judge, Zeng said. In order to cushion the impact of trade friction, they have laid out overseas assembly plants and plan to base themselves on online sales to lock in more young people.

 On the impact of RMB appreciation, in the foreign trade industry for more than 20 years Meng Zhuo also looked far away.

 Meng believes that keeping the renminbi high makes foreign exports more difficult, but it will also have other effects, such as expanding the renminbi's share of the world currency, preventing Chinese capital outflows, and increasing imports to reduce surpluses with countries such as the United States. These benefits may well outweigh the temporary loss of exports.

 The so-called crisis has always been in danger. The rise in the RMB exchange rate is not conducive to exports but to imports. Under the background of the domestic and international double cycle, improving the added value of products, trying to increase for enterprises to improve the added value of products, try to increase imports and open up domestic markets.

Up! Up! Up! Why is the appreciation of the RMB so fast?

 A few months ago, people who traded yuan for dollars, The intestines may be green these days. Because the yuan is rising, And the dollar is falling. The median exchange rate of the yuan against the dollar on 29 May was 7.1316, On 2 September it was 6.8376. From 7.1316 to 6.8376, If we exchange $50,000, It was 356 thousand and 58 yuan, It's only 341880 RMB today, Can save 14700 yuan. Visible, How much the yuan has risen recently.

Data show The yuan's median exchange rate against the dollar has risen to a high for more than a year. The People's Bank of China authorized the China Foreign Exchange Trading Center to announce, On September 2,2020, the intermediate exchange rate of RMB in the interbank foreign exchange market was 6.8376 yuan, Up 122 basis points from the previous trading day. The yuan's median exchange rate against the dollar has risen for seven consecutive days, Set a new high since May 14,2019. The offshore and onshore RMB exchange rate against the US dollar is also "a rise ". 1 September, Both offshore and onshore yuan rose to the 6.82 marks, Among them, The offshore renminbi was once set to a record high of 6.8134 since May 2019, The day rose more than 400 points. For a moment, Why is the RMB exchange rate strong, Whether the RMB appreciation trend can continue, Become the topic of market concern and hot discussion.

According to the experts interviewed, The main reasons for the yuan's strength are three aspects: 

one is the weakening of the dollar index.

 In general, The strength of the dollar index is inversely related to non-dollar currencies such as the renminbi, You're strong, I'm weak, If you're weak, I'm strong. Data show, Since late May, The dollar index started falling, More recently, it fell below 92, Set a new low since early May 2018. Wen Bin, the chief researcher at Minsheng Bank of China, told Xinhua, Because of the Fed's sky currency, In anticipation of a weaker dollar, The dollar index continues to fall, Non-American currencies, including the renminbi, have appreciated. In the view of CITIC Securities fixed income chief analyst Mingming, The Fed has launched an unprecedented massive monetary easing since the outbreak, And the Fed has adjusted its monetary policy framework, the introduction of "average inflation system ". July, U.S. bond yields that have been held down further, At the same time, the dollar index is basically from late July opened the "dollar shortage" after the end of the second phase of a significant decline. 

Second, China's economic fundamentals continue to improve. 

"China's epidemic prevention and control have achieved remarkable results, China's economy continues to improve, Major economic indicators are improving, China was the only major economy with positive growth in the second quarter, This is strong support for the yuan ." Wen Bin said. According to the NSO, China's economy continued to recover steadily in July, Among them, For the first time in July, retail sales grew from negative to positive, Export growth reached double digits. And the latest announcement of the August manufacturing purchasing manager index, non-manufacturing business activity index and comprehensive PMI output index, the three indexes have been kept above the critical point for six consecutive months. And clearly, The stronger yuan is also a reflection of China's economic fundamentals. From the performance of the manufacturing PMI index, After a precipitous fall in February, China's economy continues to recover, Both the World Bank and the International Monetary Organization predict that China will be the few countries to achieve positive economic growth this year, Therefore, after the outbreak of domestic fundamentals to provide important support for the RMB exchange rate.

 Third, RMB assets are popular. 

Wen Bin points out, China is continuing to open up financial markets, International investors are bullish on China's economic prospects and renminbi assets, Foreign capital continues to flow into China's capital markets, It is conducive to the appreciation of the RMB. According to data recently released by the State Administration of Foreign Exchange, July, The net increase in foreign capital holdings of domestic listed stocks and bonds increased by 1.4 times over the same period last year, The balance of foreign exchange reserves is growing for four consecutive months. Mingming said, In the context of global central bank easing, The People's Bank of China's monetary policy remained cautious and determined during the outbreak, The spread between China and the United States remained high, The attractiveness of the yuan's assets has increased significantly, This also promoted the strength of the RMB exchange rate. As of 28 August, A representative spread of more than 230 basis points on China-US 10-year bonds, The wider spread between China and the United States and the higher returns on the renminbi's assets inflows of foreign capital, The appreciation of the RMB exchange rate plays a role in promoting. 

What is the future trend of the RMB exchange rate?

 In general, Appreciation is conducive to import, travel abroad, consumption and study abroad, But it will have a negative impact on exports. Actually, our mold manufacturing business already slows down. the more bad news is injection molding business will worse even because of the exchange rate dow.

 So, For the currency, The outside world is also very concerned. For the next phase of the RMB exchange rate, Wen Bin's analysis, In the short term, Because China's economy continues to pick up, International investors are bullish on capital markets, Continued inflows of foreign capital, These factors are expected to further boost the appreciation of the renminbi. But, uh, In the medium to long term, With the further marketization of the RMB formation mechanism, The RMB exchange rate will maintain two-way fluctuations at a reasonable equilibrium level.  Clearly, analysis, the yuan exchange rate strength or will continue, but in view of the possible risks in the future, including global risk aversion, Sino-US relations and asymmetric capital controls, the yuan exchange rate may show a slow slope appreciation trend, short-term RMB exchange rate range or 6.7~6.8. At the same time, it should be noted that the continued appreciation of the exchange rate may have a certain impact on Chinese exports and manufacturing. China's monetary policy implementation report for the second quarter of 2020, issued by the central bank in August, proposes to deepen the market-oriented reform of the exchange rate, improve the floating exchange rate system based on market supply and demand, with reference to a basket of currencies, maintain the flexibility of the RMB exchange rate, and give full play to the role of the exchange rate as an automatic stabilizer for macroeconomic and balance of payments adjustment. Stable market expectations, maintain the RMB exchange rate in a reasonable equilibrium level of basic stability.

Three Concepts of China's Economy

Today, the second half of 2020 began, the new crown pneumonia epidemic is still spreading around the world. 

How will exports, the stock market, the property market, employment, new infrastructure, poverty alleviation, fiscal policy, the RMB exchange rate, small and medium-sized enterprises, and other areas perform in the second half of this year?

 Exports are expected to remain flat or even grow last year

China's exports have rebounded as the country's return to work and production has been largely realized and the multi-country epidemic has stabilized. According to official data, China's exports fell 4.7 percent year-on-year in January-May this year, down 1.7 percent from January-April, and 6.7 percent from the first quarter.

 According to the Canton Fair, known as China's "barometer" and "weather vane ", most of the exhibitors have a common feeling: the most difficult time has passed, and exports for the whole year are expected to be flat or even increase from last year.

 Disturbance of A stocks in peripheral markets

Except for the Shanghai Composite Index, which fell 2.15% in the first half of this year, the other major indexes of A stocks all rose sharply. According to data from financial data service provider tonghuashun, as of 15:00 Beijing time, the deep index rose 14.97% in the first half of the year, the small and medium-sized index rose 20.85% in the same period, and the gem index rose 35.6%, far better than the performance of other major global stock indexes.

 In response to the trend in the second half of the year, the Great Wall Fund Chief Economist told Vida that China's economic recovery is better than market expectations, but also significantly better than the European and American countries.

 From a short-term perspective, the current and future period of liquidity easing pattern will not change, China's economic recovery trend is determined, the current valuation of A-shares in the historical low position. From the medium and long term, as long as China insists on reform and opening up, scientific and technological innovation and industrial upgrading, the prospects for A stocks are optimistic.

 The exchange rate is expected to rebound

 From the point of view of economic recovery, compared with developed countries such as Europe and the United States, the current Chinese epidemic control is better, the economic machine has been restarted and gradually on track, IMF the latest estimates show that China may be the only major economy in the world to achieve positive growth this year.

 From the external dollar index trend, u.s. the epidemic is repeated, the economy is deep in recession, unemployment is high, domestic ethnic and social contradictions intensified, many states suspended or suspended economic restart, u.s. stock market adjustment pressure again, the federal reserve reckless quantitative easing policy "sequelae" will also gradually appear, the dollar index is expected to gradually fall to 95 or lower levels, the constraints on the yuan will be weakened.

 Chinese and foreign spreads remain high. Against the backdrop of global easing, negative interest rates, and zero interest rates, China still has a rare positive return space, and as domestic stock markets stabilize and the attractiveness of renminbi assets increases, cross-border capital inflows will increase, supporting a stronger currency. "Taken together, the RMB exchange rate is expected to rebound in the second half of the year as a whole, but there may be adjustment pressure at a time when the Sino-US game and the epidemic are repeated.

 Official articles are always more optimistic than our folk. As a plastic injection factory operator, I personally feel that the overall Chinese economy is OK, neither too good nor very bad. Some industries affected by the epidemic will be very difficult.