RMB exchange rate reform--decided out of China's own need (3)

An unexpected, but opportune reform
While answering reporters' questions on March 14 this year, Premier Wen Jiabao said that "it is likely to be an unexpected matter" as to when the RMB exchange rate reform will be launched and what program will be adopted.

Not long ago, some international investment agencies published their predictions on the appreciation of the RMB on May 8 and May 18 respectively, but after failure in their predictions, they have been kept their lips sealed, and the hot money speculating on RMB revaluation was also "cooling down"; many people have somewhat dropped this topic. The reform "unexpectedly" came out in such an anticipated atmosphere!

But a careful analysis shows that the exchange rate reform is unexpected, but is opportune:

  • Substantive progress has been achieved in China's financial reform, particularly in the reform of state-owned commercial banks;

  • Foreign exchange control is being gradually relaxed; construction of the foreign exchange market is being incessantly strengthened; market instruments are being popularized step by step;

  • In the first half of this year, China's economy grew 9.5 percent and consumer price rose 2.3 percent, putting China's economy in the best period of "high growth, low inflation", so the economy is fully capable of coping with the impacts possibly brought about by exchange rate reform;

  • In the first half of the year, the stock and increment of foreign exchange reserves are at an unprecedented level; at the end of June, foreign exchange reserves soared to US$711 billion, considering that the US$15 billion worth of foreign exchange reserves the state injected into the Industrial and Commercial Bank of China, foreign exchange reserves actually increased by US$116 billion in the first half, bringing great revaluation pressure on the RMB, which needs to be adjusted through exchange rate reform;

  • The world economy is operating smoothly; the interest rate of the US dollar rises steadily; part of the risk capital has begun to be withdrawn, thus relatively reducing the RMB revaluation pressure brought about by exchange rate reform.

    Part 1.  Part 2.  Part 3.  Part 4.  Part 5.  Part 6.  Part 7.  Part 8.



    People's Daily Online --- http://english.people.com.cn/