To What Extent Would the Appreciation of Renminbi Influence Labor-Intensive Export Enterprises in China

To What Extent Would the Appreciation of RMB

Influence Labor-intensive Export Enterprises

in China?

Zhu Mingxi (Frankie)

0080096090

1391 words

RMB, the official currency of China, has experienced a sharp appreciation since the currency reform in 2005. Currency is closely bound to a nation’s economy, so it is necessary to make clear the effects of this ascending trend.

The export sum of China accounted for 10.4% of the total amount around the world in 2011, according to a recent report International Trading Has Achieved Great-leap-forward Development by China's National Bureau of Statistics. This report also stated that there still existed a large sum of surplus in China’s foreign trade. Usually, a favorable balance of trade causes an appreciation in the exchange rate. Whenever there is a current account surplus all things constant, there is a great inflow of foreign currency, because in order for other nations to purchase exports and fuel the current account surplus these countries would have to buy the national currency, since the exports are priced in national currency. With that inflow of foreign currency, there is a pressure for appreciation of domestic currency since there will be more demand for the given supply of national currency, then the national currency goes up .(Olivier Blanchard, 2008)

The appreciation of RMB may pose a threat to China’s outbound trading, especially to domestic labor-intensive enterprises whose commodities occupy a great majority of nation’s international trading business. International trading significantly contributes to China’s GDP and employment. It is argued that a suddenly dearer currency will make Chinese goods more expensive in international markets, hence reducing their competitiveness and damaging those manufacturers. However, it is essential to look at this question from various aspects both in depth and in the long run.

At first, with currency appreciating, export products from labor-intensive...