Exchange rate is a most influential macro-economic signal to any open economies, a slight move of which in one part may affect the situation as a whole. People may count on a change in the exchange rate to achieve the goal of "killing several birds with one stone", but such a good thing is non-existent as a whole.

Any adjustment made to the exchange rate of the people's currency (RMB) would at least affect the Chinese economy per se as well as various aspects of the Chinese economy's foreign relationship, so it is essential to make careful and meticulous estimation of various possible consequences and measures to cope with such consequences.

A change in the exchange rate would, to some extent, affect China's import and export and the balance, changes in import and export would affect the speed of China's economic growth, affect Chinese export departments' employment absorption abilities as well as the employment situations of other economic entities with close trade relations with China.

A modification of the exchange rate may affect the balance sheets of many enterprises with international business. It would cause the asset depreciation of many enterprises that use foreign currencies for valuation, and the asset appreciation of those using home currency for valuation. And a change in balance sheet would affect the lending capabilities, the financing policy-decisions as well as the production decisions of these enterprises.

An alteration in the exchange rate would hinder the capital flows between China and foreign countries. Under the situation wherein China's financial reform has not yet been completed, the influence such capital flows may exert on China's financial industry cannot be underestimated.

An alteration in the RMB exchange rate would bring a change in China's consumer price index. Specifically, an appreciation of the RMB would exert a certain deflationary pressure.

An exchange rate change would cause a price fluctuation in the property market, which is especially pronounced in the realty industry. Out of the expectation of a revaluation of the RMB, overseas capital pours into the realty industry, if this expectation can be fulfilled, part of the foreign capital will be pulled out, hence causing fluctuations in the price of real estate in some cities.

An exchange rate change would lead to price fluctuations on the international raw material market. This is due to rampant speculation on the world raw and semi-processed market. Exchange rate adjustment brings hope to speculators for further adjustments, which turns to price fluctuations on the market.

A change in RMB exchange rate would trigger a new balance of international economic strengths, especially a change in the overall scale of the Chinese economy that uses official exchange rate for valuation, thus leading to extremely complicated psychological change and giving rise to unexpected questions of international relations.

Appreciation of the RMB would exert certain influence on the countries with investment and trade relations with China. Some countries are benefited while some other nations are adversely affected, thereby giving rise to a fairly complicated process of a second round of international exchange rate adjustment, the consequence of which is rather complex.

The Chinese economy, which has maintained stable, rapid growth in the past 20 years or so, has become an inalienable part of the world economy. China's economic scale has ranked sixth in the world's overall economic scale, its actual economy activity calculated on the basis of real purchasing power is placed third in the world, the openness of China's economy (calculated in accordance with the proportion of import and export to GDP) has reached as high as 70 percent, leading various countries around the world, the impact of a fluctuation in China's economy on the world economy is easily visible, any adjustment or reform of the RMB exchange rate must be conducted in an attitude of being responsible for the stability and development of China's economy and the world economy. Based on these considerations, Premier Wen Jiabao recently stated that the reform or adjustment of the RMB exchange rate must follow the principle of initiative, controllability and gradualness.

To sum up, adjustment of the RMB exchange rate will exert complex influences on every aspect of China's economy and its foreign economic ties. An active and pragmatic attitude should be adopted for adjustment of the RMB exchange rate, this means being responsible not only for China's economy, but also for the global economy.

This article by Li Daokui is carried on the front page of People's Daily Overseas Edition, June 29 and is translated by People's Daily Online