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Q: Can an appreciated RMB help China?

Can an appreciated RMB help China?

We can hear Chinese and foreign (U.S and European) economists arguing for the RMB, almost every-day on televisions or Internet.
U.S and Europe wants the RMB to appreciate. According to them the RMB is pegged at 20-30% lower than its actual value, this gives unfair advantage to Chinese exports and at hurts their economy.
Whereas the Chinese think in a different way; they don't disagree that RMB is valued low (but not as much the Europeans and U.S claim) but doesn't want to let it appreciate (in a manner that their counterpart wants to). They fear appreciating the RMB will result in Chinese exports loosing theirs competitive advantage and hurt its economy (since china's reliance on export is huge)
And the argument goes on and on .

Today if the exchange rate of Yuan per U.S dollar is 6.87, it means the central bank has to pay 6.87 Yuan for every dollars earned by Chinese exporters. What if it lets it changes it to 5.87; can't it save 1 Yuan per dollar? I know it would mean appreciating the Yuan and hurting the export sector and so on
Why does china export so much? There are many reasons for this; one of them is lack of domestic market. China has a huge population (almost more than U.S and Europe combined) still it cannot consume what is produces. Another reason might be china produces too much other is Chinese citizens lack money to buy them. What if this 1 Yuan saved by the central bank goes to the Chinese citizen; won’t it increase their purchasing capacity? And compensate for the loss in export?
There are two problems here;

2. How will the central bank distribute this money to its citizens?
1. The government can use this money to make healthcare free of cost, doing so can eliminate the burden of citizens. Chinese citizens wont be needed to save huge amount for their future medical costs, this would increase their purchasing power and help consume those goods which were supposed to be exported.
2. If this 1 Yuan is insufficient to make healthcare completely free of charge then the government should at least subsidize it. Even subsidies would increase citizen's purchasing power.
3. 1 & 2 can be applied for the education sector too.
2.1 Unanticipated effects of doing so
• Decrease in people's burden hence making them happier.
• When people are happy they are unlikely to revolt against the government
• This can increase life span of the communist party

3. Can it really compensate for the loss of exports?
1. Almost every citizens save for healthcare but only some of them get sick. The increase in purchasing power from free healthcare will certainly be enough to buy those goods(which were supposed to be exported)
Will this 1 Yuan be enough to provide free healthcare or education?
When I talk about saving 1 Yuan, it is actually not just saving 1 Yuan。 There are following savings and increase in revenue for the government too:
• When exports are turned into domestic consumption, government needn’t pay those export-rebates. Huge saving for the treasury.
When people buy clothes and shoes (these are goods that are usually exported) instead of medicines they have to pay greater amount of tax than they pay for medicines. This can certainly increase to government’s revenues.

4. Overall benefits of appreciated RMB
• Europeans and Americans will be welcome it. China would no longer be portrayed as an economic villain.
• China can ask Europe and U.S to recognize it as a market economy in exchange for an appreciated RMB. This will decrease number of antidumping cases against china in WTO and hence enhance china’s image.
• I have already explained above how the decrease in exports can be compensated by increase in domestic consumption
• Good for the Chinese citizens ; can get free welfare services( subsidized at least)
• Good for the communist party; when citizens are happy (result of government’s social welfare service) they will certainly not oppose the government (the party in china’s case), hence the communist party can rule longer.

I am not aware of the import-export data of china, neither about its annual budget nor about how much amount it needs to make health and education free;
I certainly don’t propose China to let the RMB appreciate just for the sake of foreign economies and hurt its own, but if my thesis holds any water and has practical feasibility then china should let RMB appreciate.

8 years 29 weeks ago in  Money & Banking - China

 
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i really dont care. i want a fair trade deal between the usa and china. if china wants to charge 22% tariffs on american goods sold in china, then the usa should charge 22% on goods made in china. if china is cheating and adding additional markups to where an american made camera costs 3X the price than in the states, then the usa should add additional markups on chinese products. if china wants to cheat and allow american products to be counterfeited then the usa needs to stop trading with china all together. if china wants to cheat with regards to over stating the value of of it's currency then the usa should demand trade be done using only american currency. simple

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8 years 18 weeks ago
 
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i really dont care. i want a fair trade deal between the usa and china. if china wants to charge 22% tariffs on american goods sold in china, then the usa should charge 22% on goods made in china. if china is cheating and adding additional markups to where an american made camera costs 3X the price than in the states, then the usa should add additional markups on chinese products. if china wants to cheat and allow american products to be counterfeited then the usa needs to stop trading with china all together. if china wants to cheat with regards to over stating the value of of it's currency then the usa should demand trade be done using only american currency. simple

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8 years 18 weeks ago
 
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All the government cares about is those exports, which not only mean revenue but also economic growth. It's the fastest way to grow their economy, I suppose. Yeah, appreciating the yuan would mean more purchasing power for China's citizens. It would also mean that many companies would move their production out of China and move their factories somewhere cheaper. I assume that is what they're afraid of. China isn't ready for that yet, they still depend too much on exports. Appreciating the yuan helps the people, and it doesn't put money in the government's pockets, so I think you can see why the government isn't keen on it.

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8 years 18 weeks ago
 
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It can help me. I checked the exchange rate today. Canadian dollar is at 6.3! Used to be 6.7. Keep it up until I'm one to one please Tongue

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8 years 18 weeks ago
 
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An appreciated RMB will totally stall China's growth and will probably even reverse it. The government knows if they start playing by the rules then they don't stand a chance in the global market. Notice how fierce China is in its condemnation of the recent US currency bill? They know it'll be game over.

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8 years 18 weeks ago
 
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That is the longest question I have ever seen.

The answer is no.

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8 years 18 weeks ago
 
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