Since the beginning of this year, the RMB exchange rate has shown a clear depreciation trend, especially since May, the RMB against the US dollar exchange rate in both the onshore and offshore markets fell below the 7.0 integer mark, hitting a new low in nearly half a year.
By August, the renminbi had even fallen below 7.3 against the dollar.
What is the reason for this round of RMB depreciation? What impact has it had on our economy and society?
Let's look at the impact of the depreciation of the renminbi on foreign trade
Generally speaking, the depreciation of the RMB is conducive to improving export competitiveness and helping to alleviate the problem of excessive foreign trade surplus in the mainland.
According to China Customs data, in the first seven months of this year, the total value of China's imports and exports was 23.55 trillion yuan.
Among them, exports to major trading partners such as the United States, the European Union and ASEAN have achieved double-digit growth. This shows that the depreciation of the renminbi is beneficial to export-oriented enterprises and is also conducive to the mainland expanding its share and influence in the international market.
However, depreciation will also raise the cost of imports, leading to higher prices, affecting residents' living standards and spending power.
As the depreciation of the renminbi increases the cost of imported goods and raw materials, this part of the cost is likely to be passed on to consumers, resulting in a decline in the purchasing power of residents.
The prices of gasoline, diesel and other petroleum products are affected by both international oil prices and exchange rates, and in August 2023, we witnessed another increase in oil prices. In addition, the prices of some imported food, clothing, cosmetics and other daily consumer goods may also rise.
The depreciation of the renminbi has pushed up inflation expectations, leading to a decline in residents' willingness to save. According to data from the National Bureau of Statistics, from January to July, the national consumer price increased by 0.5% compared with the same period last year.
As import inflation rises due to the depreciation of the renminbi, which is transmitted to the domestic price level and inflation expectations, it may trigger residents' concerns about currency depreciation, thereby reducing the willingness to save and increasing the tendency to consume or invest.
For example, some residents may purchase physical assets such as property, cars, gold, etc. in advance to preserve or increase their value.
The depreciation of the renminbi has affected the cost of overseas travel and study, resulting in a decline in residents' willingness to leave the country. Some residents may cancel or scale back their outbound travel plans in favor of domestic travel or other modes of consumption.
In addition, the depreciation of the renminbi will also increase the cost of studying abroad, causing pressure on some residents who intend to study abroad.
The main reason for the depreciation of the renminbi
On the one hand, the divergence of monetary policy between China and the United States has led to a widening interest rate differential between the renminbi and the dollar.
Since 2023, the US economy has performed strongly, and inflation has continued to rise, triggering market expectations that the Fed will tighten monetary policy ahead of schedule.
China's economic growth has slowed and inflation is low. Recent domestic economic data show that although the economy has maintained a recovery momentum, the recovery of domestic demand has slowed.
Insufficient domestic demand has slowed down import growth, and has also affected market confidence and expectations for future economic growth.
China's central bank continues to implement moderately loose monetary policy in 2023 and is expected to cut interest rates twice throughout the year, lowering the one-year benchmark deposit rate to around 1.5%.
As a result, the interest rate differential between China and the United States will become larger and larger, causing funds to flow from the low-yielding renminbi to the high-yielding dollar, thereby pushing the renminbi exchange rate down.
On the other hand, changes in global risk appetite have led to capital flows from emerging to developed markets. Due to uncertainties such as the new crown epidemic, Sino-US relations, and geopolitics, global markets have experienced volatility and panic.
Many investors have chosen to sell RMB assets in order to avoid risk, and instead buy US dollar assets, especially safe-haven assets such as US Treasuries. As a result, the demand for the renminbi will decrease and the supply will increase, thus pushing the renminbi exchange rate down.
The impact of RMB depreciation on the property market and stock market
Generally speaking, the depreciation of the RMB has two effects on the profitability of listed companies. For export-oriented businesses, a depreciation of the renminbi can boost their export revenues and profit margins, thereby boosting their share prices.
For import-dependent enterprises, the depreciation of the renminbi will increase their import costs and financial expenses, thereby reducing their profit margins and stock prices.
As for the property market, the depreciation of the RMB will have a more complicated situation in the real estate market.
On the one hand, the depreciation of the renminbi increases residents' sense of uncertainty, leading them to be more inclined to buy physical assets, while on the mainland, real estate has been used for many years as a "cash cow" for preserving or increasing value.
As a result, demand in the real estate market will increase, driving house prices up.
On the other hand, the depreciation of the renminbi will increase the cost pressure on real estate developers, causing them to be more inclined to speed up destocking or reduce sales, and the supply of the real estate market will increase, curbing the rise in house prices.
Developers and consumers, to some extent, form a divergence, in which investors need to judge and make decisions based on different regions and projects.
asset
In terms of assets, the depreciation of the RMB has an important impact on the wealth effect and expectation psychology of residents. On the one hand, the depreciation of the renminbi reduces the value of the renminbi assets held by residents, causing them to feel lost or dissatisfied.
As a result, residents' willingness to consume will be reduced, affecting economic growth. On the other hand, the depreciation of the renminbi will stimulate residents to allocate or transfer assets, leading them to seek more investment opportunities or channels.
Residents' willingness to invest will increase, and the capital market will be active. Therefore, the depreciation of the RMB will lead to changes and adjustments in the wealth effect and expected psychology of residents, affecting economic stability.
In this case, residents may need to be more careful in developing their own investment and savings strategies to adapt to exchange rate fluctuations and changes in the economic environment.