WTO Accession, Foreign Direct Investment and International Trade
Advances in Chinese Economic Studies series
Edited by Chunlai Chen
Chapter 8: The Impact of the RMB Revaluation on China and the World Economy
James Xiaohe Zhang INTRODUCTION Since China ended a peg of its currency to the US dollar in July 2005, the Renminbi (RMB) has appreciated, with an accumulated rate of more than 18 per cent during a period of two-and-a-half years up to the time when this chapter was written in June 2008. However, the issues on whether, how and to what extent will the nominal rate of the RMB be further revaluated remain unsolved. Although the pressures on RMB revaluation from the United States, Japan and the European Union intensified over the last two years, the Chinese authority is still reluctant to appreciate the RMB further. One of the reasons for this reluctance is that the Chinese banking system and financial institutions are still too vulnerable to manage international currency shocks for a full convertible RMB in the foreseeable future. Another concern is massive unemployment resulting from a considerable fall in exports when the appreciation accelerates. According to a report released by the Ministry of Labor and Social Security recently, the appreciation will mainly bring negative impact on China’s employment. Industrial sectors that are most affected by the appreciation are textiles, clothing, shoemaking, toys, motorcycles and agricultural sectors. When the RMB appreciates by 5–10 per cent, about 3.5 million workers in the nonagricultural sectors lose their jobs. Meanwhile, millions of farmers could be also affected adversely (China.com, 2007). The Chinese official position is shared not only by most of the academia and business people in China, but also by...
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