Developing Asian People's Era of RMB

Many 'first' honors bestowed to China can cause sweating burden to the country. As such, as China overtakes German to become the world's largest exporting country, China may have to greet such 'first' honor with mixed feeling. What follows the honor in becoming the world largest export country is but a flood of antidumping investigations, as well as pending RMB (Reminbi) appreciation pressure coming from the United States and European countries?

If we can be a bit more rationale in thinking, it is quite clear to all that taking into the consideration of the economic difficulties of the Chinese people and then the fact that many Asian countries will have to depend on the support of Chinese economy to carry on with their respective economic development, it is unlikely that China's currency RMB will appreciate in the near future. Even if full recovery of global economy has become clear, we can expect the Chinese Government will not allow the RMB to appreciate hastily.

Currency Exchange Rate
An example to explain that western countries have indeed misunderstood and misinterpreted the notion that China has made huge profits through its trade surplus and currency exchange rate with other countries can be viewed from the fallacies of trade statistics.

For example, a Nokia cell phone worth $1,000 adds in China's export value and brand for China to export them as Chinese product can only allow Chinese traders make a decent profit. However, since this Nokia cell phone has become the product with its final processing stage of production done in China, the trade value of all these $1000 Nokia phones are calculated into China's total export volume.

The export trade of Germany is entirely different. Germany's main exports are mechanical and electrical machinery production. These products have very high technological content. As such the trademark transfer fee earned by its trademark holders for each part of these products are enough for the German trademark holders to earn handsomely.

Manufacturing and Processing Industries
In the case of RMB, the value of RMB can affect tens and thousands of China's manufacturing and processing industries as well as the export traders. If the Chinese Government allows its RMB to appreciate hastily, it will be very difficult for the Chinese industries that produce and export large quantities of shoes, hats, toys and products to survive.

From a macro point of view, the appreciation of RMB may make manufacturers in Asian countries that consider China as their competitors happy. However, when consumers in Asian countries cannot obtain China's goods which are cheaper in price, the inflation rate in these Asian countries will also be on the rise. As such any effort taken by the western countries to appreciate RMB will not do any good to the Asian countries. It will be lose-lose economic and trade strategy for Asia.

From the commodity trade structure view point, many manufacturers in Asian countries have long established their factories in China. They take advantage of China's low production costs and the low prices of raw materials. What these Asian manufacturers do is that once they chart out the local designs for their products, they will pass their product designs to the manufacturers in China to carry out mass production. Once the products are done, these products will again be shifted back to the Asian manufacturers for their local Asian markets for sale with good profits. Although the quality of products made in China has drastically improved in recent years, the advantage of China's manufacturing industries is still built on the favorable RMB exchange rate advantage to the Asian manufacturers.

In textile trade, for example, if we compare the fabrics and designs of clothes made in China and those made in Hong Kong or South Korea, it is obvious that those clothing made in Hong Kong and South Korea are definitely more beautiful and better in quality than those made in China. As such those trendy and brand conscious consumers will hardly buy clothing made in China. Each has its own unique market share.

Competitiveness in International Market
Appreciation of the RMB will not bring any benefit to the trade between China and Asian countries. In addition, it will cause hardship to the Chinese people who depend on manufacturing and trade to earn their living.

If RMB really appreciates, it will weaken China's market price competitiveness in the international market. In principle, this should be good news to Asian traders and manufacturers who view China as their trading competitors. But the fact is that many Asian firms have already set up factories in China and would take their finished products done in China back to the country for retail sale or for export to other countries. In the process, the appreciation of RMB is not to their advantage of Asian people.

In any case, we note that the international financial markets have already begun to feel very excited of their expectation of the appreciation of RMB.

Currency Exchange Transaction Data
According to 29 March's US financial data, the market expected the Chinese government would allow the RMB to appreciate in order to curb China's inflationary rate. Coupling with the long-term trend of the weakening of US dollar, the exchange rate of RMB to US Dollar has risen to a new high within a week.

According to currency exchange transaction data, the past 12-month's exchange of RMB to US Dollar's nondeliverable forward exchange rose by 0.2 percent. The exchange rate has become $1 to RMB 6.6655. Currency trade has expected that within the next 12 months, the exchange rate between RMB and US Dollar will see the RMB exchange rate appreciate 2.4 percent as against US dollar.

As for China's own concern about the appreciation of RMB, behind China's economic prosperity are the hidden worries of excessive capital investment, surge in corruption, unchecked credit growth, moral hazard in businesses, unstable financial architecture, as well as the fact that the non-performing loans have pushed the property and asset prices up in great speed. These are the urgent reform items the Chinese Government should consider as priority.

China's Currency Pattern
We can foresee that if Chinese Government revalues the exchange rate of RMB against the US dollar, all major Asian countries' currency will also follow China's currency pattern to revalue their respective currency also.

As such, there is a need for the Chinese Government to follow its own stable pace to improve the RMB exchange rate mechanism. On the issue of appreciation of RMB, the Chinese Government should not be affected by pressure coming from the United States and other western nations. Chin should look into the interest of the developing countries as its RMB currency exchange base to build an era of Asian people's RMB.