RMB exchange rate viewed from all sides

The Renminbi exchange rate began a hot topic again upon the announcement of exchange rate regime reform on July 21. What will be the impact on people's life? And how will related sides cope with it?

Residents: no big influence on daily life
Ms. Chen, who works for a government organization, kept much US dollars on hand. She learned the news of exchange rate adjustment on her way home, but reacted calmly. She told reporter that she holds dollars mainly for her child's future schooling overseas, and the RMB revaluation doesn't affect the purchasing power of dollars outside China. What's more, she also benefits from the raised rate of domestic dollar deposit.

Of course, the adjustment means some losses to those who want to convert their dollars to RMB but haven't got the time to do so. But ordinary people usually don't hold much dollars, and even for some dollar-holding families, the 2 percent revaluation is only a slight change which will not bring much impact.

A slight RMB revaluation would benefit common people's life in many ways, experts say. For example, imported goods are now cheaper, which to some degree helps to keep domestic prices stable. The benefit is more apparent for those traveling abroad, because the spending looks lower in RMB.

At a real estate sales office, a young man told reporter that upon deciding whether to buy an apartment or not, he would primarily consider his actual needs and economic strength, but not exchange rate, although people say a RMB revaluation may lead to added value to real estate.

Enterprises: active in structural adjustment
Compared with ordinary people, enterprises naturally have more considerations. At a press conference to release economic indices of medium-and-small-sized enterprises held in Beijing on July 26, Mr. Cui from a garment processing company in Tianjin told reporter that impact of the slight adjustment may not be big since competition has been fierce in garment export and profit has not been high in recent years. But they still made some measures by actively adjusting product structure. Since this year his company began to provide OEM service for some domestic brands, which is more profitable and can help raise the company's risk resistance capability.

Enterprises with markets abroad but raw material supplies at home such as paper makers, iron and steel producers and oil refinery operators will benefit from the higher exchange rate, while those operating the other way would face challenges. How to change operation patterns, increase innovation capability and sharpen one's international competitive edge have become a question facing many export-oriented companies.

Mr. Cui says he would make more studies on the exchange rate regime since it is becoming more market-based. He also hopes for more publicity and service of financial instruments provided by banks to help enterprises avoid exchange rate risks.

Foreign-funded enterprises: focus more on market prospects
American businessmen welcomes China's decision to shift to a exchange rate mechanism more based on market demand and supply, said Charles M. Martin, president of US-China Chamber of Commerce. He added that this is an important contribution to the creation of active US-China trade ties, and he hopes the reform in China's financial system will be continued in an active way.

Some enterprises investing in China also said that they pay more attention to market prospects and investment environment rather than exchange rate. The adjustment this time marks a further step in China's market-oriented reform which will add to the attraction of the country's investment environment.

The exchange rate adjustment has limited impact on China's foreign trade development, experts say. This is because, firstly, the adjustment is very gentle; secondly, the new exchange rate affects different trade types in different ways. It has a bigger impact on general exports, while on processing trade, which takes half of China's total trade volume, the effects on import and exports largely averaged out.

Banks: a test on operations
For the five domestically listed banks, their liabilities of foreign currency assets only take 0.52 percent of their total assets, so the impact is very small. Even for the Bank of China, who holds large amounts of foreign currency assets, the real effect is also limited. A source from the bank says that BOC's foreign exchange funds can earn a profit on international markets two percentage points higher than RMB investment at home, which can just make up for the 2 percent RMB revaluation. The new exchange rate will have no negative impact on the bank's annual performance.

Since China is committed to the establishment of a managed floating exchange rate system based on market demand and supply, the RMB exchange rate against foreign currencies are thus subject to change from day to day, the bank said. This requires a quick-response system from the banks and improved service in pricing, service and management. This is a test to bank operation.

Besides, banks, especially those medium or small sized, also urgently need to offer risk-reducing financial instruments such as the Foreign Exchange Forward Contract (DF) to attract more enterprises.

Stock: new prospects opened
On July 22, the second day after the exchange rate adjustment, the Shanghai Stock Exchange composite index closed nearly 26 points higher, and big rises were seen in stocks of aviation, real estate, oil chemistry and paper making. The stock index kept rising on July 26 and 27.

Mr. Liu, an investor, believes the slight RMB revaluation affects investors positively, and he decided to buy in shares the next day.

The positive role of the RMB exchange rate reform in the stock market has shown itself fully, experts say. From a long-term view, attention should also be paid to the improvement of listed companies' performance and capital supply to the stock market.

By People's Daily Online



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