PSCI-355-M01
Gov’t and Business
Dr. Steeve Coupeau
2011 Fall
Term Paper

Should Chinese Govenment appreciate RMB?

Dec. 2011

Should Chinese Government Appreciate the RMB?
I. Introduction:
Whether RMB should appreciate becomes a hot topic recently. This article uses qualitative method, data and theory analysis find that with Chinese trade surplus sustaining itself for seven years, an increasing number of foreign governments believe the RMB is undervalued and it needs to be appreciated, while many Chinese experts against them and hold the idea that the appreciates of RMB will cause Chinese economy to bear several bad consequences. This article considers that as the comprehensive strength of the Chinese economy grows, China should appreciate the RMB reasonably, and let this new opportunities create more room for China’s future economic growth. II. Cons:

Some experts oppose the RMB appreciation. They said “China’s export industry still relies heavily on cheap labor to compete in the international market. So the added value is very low. With the appreciation of the RMB, exported goods will be more expensive and China will lose its competitive status” [1]. Consequently, the appreciation of RMB will affect the performance of China’s export industry and slow down the overall growth rate of the national economy. However, people who are against this opinion think that if China keeps RMB undervalued and heavily relies on export, it will not be sustainable for China’s future development. In addition, due to the sustainable accumulation of Chinese trade surplus, China holds a large amount of foreign currency reserves. So, the experts argued that “Chinese government may be loathe to see the RMB appreciates too rapidly is that it owns $800 billion of U.S. debt in 2009. A 25% appreciation in RMB would reduce the value of those holdings to approximately $640 billion. That's a high price for China to pay, especially in light of the fact that U.S. inflation is expected to rise in the coming years, which will further deflate the value of those holdings ...

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