Advantages outdo disadvantages to China's economy as a whole
One of the contents of RMB exchange rate reform is: As of July 21, the revaluation of the RMB against the US dollar is 2 percent, i.e., one US dollar to 8.11 yuan.
It is necessary to have an all-round understanding and objective analysis of the influence of RMB exchange reform on the Chinese economy.
On the one hand, exchange rate is like a "double-edged sword", the exchange rate, whether moves up or down, has both advantages and disadvantages on the economy.
Appreciation of the RMB has its inherent advantages. For example, after appreciation, the price of RMB used for the import of huge amounts of commodities will drop accordingly, it is possible to drive down the entire domestic price level and reduce the cost of enterprises.
Take another example, after revaluation, the same amount of RMB can exchange for more US dollars, this helps enterprises to "go global", make full use of domestic and foreign markets and resources and raise the level of opening to the outside world.
On the other hand, the exchange rate reform would, within a short term, produce certain influence on the exportation and employment of enterprises with weak competitiveness, but on the whole, advantages outstrip disadvantages.
Some people say, theoretically speaking, after the revaluation of the RMB, the exporters' foreign exchange incomes gained from their export of commodities, the RMB, converted from these incomes, will be less than before, thus diminishing the range of profits; while the RMB, converted into foreign exchange needed by the importers for the import of commodities, will be less than before, thereby enlarging the range of profits. By inference, the revaluation of RMB can curb exports and encourage imports.
In fact, this is not all true.
It should be noted that firstly, trade balance is determined by consumption, investment and other basic economic factors, it depends on the comparative advantage and competitiveness of a country's international trade and does not depend on the level of exchange rate.
From after World War II to the end of 1987, the Japanese yen and the German mark respectively revaluated by a big margin of 1.93-fold and 1.66-fold, but the two countries' foreign trade still maintained a pattern of surplus.
Secondly, over 60 percent of China's current total exports are processing trade. Processing trade is a kind of business in which bonded imports of wholly or partially raw and semi-finished materials, parts and components, wrapping material from outside, and after they are processed and assembled by domestic enterprises, the manufactured products are exported. The appreciation of RMB is favorable to the import link of processing trade, but is unfavorable to the export link, there are both positive and negative effects which can basically be seen as neutral.
Thirdly, China's labor cost is relatively low, not only far lower than the wage levels of developed countries, but also has competitive advantage compared with most other developing countries.
For example, compared with Thailand and the Philippines, China's labor cost is lower by about 50 percent. The revaluation of RMB still has difficulty to change the price competitiveness of China's export commodities.
In addition, exchange rate reform will guide enterprises to actively foster non-price competitiveness, enhance their independent innovative capability, accelerate the change of the growth pattern of foreign trade, and improve international competitiveness and risk-resistance ability.
Some people say that exchange rate reform may cause two kinds of enterprises to reduce their staff because of operational difficulty, one kind is some export-oriented enterprises, second are enterprises competing with imported commodities.
In fact, this is not all true.
It should be noted that exchange rate reform will have greater advantages than disadvantages for export enterprises on the whole, therefore, reform will not exert a negative function on the employment situation of export enterprises as a whole.
Furthermore, exchange rate reform will prompt export enterprises to change toward intensive and fine processing, prolong the production chain and increase work posts, at the same time, it will guide some resources to flow to non-trading departments to promote the development of tertiary industry, and thus facilitate the expansion of the general scale of employment.
From an international perspective, after the revaluation of the sterling pound in the 1970s and the appreciation of the yen in the 1980s, the tertiary industry of Britain and Japan both experienced rapid development.
Will increase in imports affect employment? The answer may be positive if the question is observed from a static perspective, but if it is considered from a dynamic perspective, the answer is negative. China is a large country in the period of rapid economic development, the potential of its domestic demand is hard to estimate, the increase of imports shows the faster growth of domestic investment and consumption and this means a wider base for the growth of employment and the job opportunity for foreign-related economic departments will grow accordingly.
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