In recent times, the USD/CNY exchange rate has broken 73 mark, the offshore exchange rate was as high as 734。The last time the exchange rate was at this figure was in October 2022, which was a special situation at that time, as the Chinese economy was severely affected by the epidemic at that time, and market confidence was almost at its lowest point. 73 This exchange rate is coming until 2007. The RMB exchange rate is related to the value of all Chinese assets and also affects the confidence of domestic and foreign investors.
Judging from the correlation between A-shares and the renminbi in recent years, it is difficult for A-shares to have a bull market if the renminbi does not fall. So 73 This threshold is worthy of our attention. Today we will talk about the fluctuation of the RMB exchange rate from the perspectives of purchasing power, international exchange rate and **.
Generally speaking, the stronger the purchasing power of a currency, the stronger the exchange rate should be. For example, 100 dollars can buy more things in an American supermarket than 100 yuan in China, which is very easy to understand. But if we multiply the renminbi by the exchange rate, we will find that the purchasing power of 730 renminbi is stronger than that of 100 U.S. dollars. This is because in addition to housing prices, imported cars, and oil prices, the purchasing power of the renminbi for most goods and services of the same value in China is higher than that of the United States.
For example, downstairs in my house, you can get a good breakfast for 9 RMB, which includes a bowl of mixed noodles and a bowl of egg patty soup. 9 RMB to USD, but 1It's in the early $2, which is not possible in the U.S. to have a made breakfast at a restaurant. Assuming I have a passive income of four or five thousand dollars a month, I have a proper financial freedom in China, but it is difficult to do it in the United States.
In addition, the characteristics of China's prices are very obvious, and you will find that the inflated prices in China are all large items, especially real estate and land, and all the cheap things are all goods and services related to manpower. For the past two years, almost the whole world has been plagued by inflation, and China's price controls have been perfect. In the whole process of global inflation, China's CPI growth rate rarely exceeds 2% year-on-year, which is enough to make developed countries envious. But as inflation began to decline, China began to face deflationary pressures. So, in the last two years, there has been a very typical opposite trend between China and the United States, that is, the US dollar has seen a decline in purchasing power in the United States, but an increase in the value of the dollar abroad.
The purchasing power of the renminbi in China is strong, but it is depreciating externally. This is more difficult for Chinese people who make money in China but need to study, travel, seek medical treatment, and invest abroad. This situation is obviously a bit unreasonable, so that the international exchange rate does not fully accurately reflect the purchasing power of a country's currency, so there is also an algorithm for evaluating PPP in purchasing power. PPP is a monetary ratio that reflects the exchange of the same set of goods and services between economies.
Take the single-item Big Mac Burger, for example, which costs 23 RMB in China and $5 in the United States. So one dollar is equal to 46 CNY. According to the World Bank, in 2022 purchasing power parity calculations, one dollar equals 402 RMB. Therefore, on the other side of the fluctuation of the RMB exchange rate, we should also be polite about the actual value of the RMB. The relationship between the international exchange rate and ** Although the purchasing power is evaluated, the relationship between the RMB and the US dollar is not as big as 1:7.3, but should be roughly around 1:4. However, not all international exchange rates will eventually converge with purchasing power.
In fact, the currencies of most developing countries around the world are significantly undervalued at international exchange rates compared to their domestic purchasing power. This includes the largest developing countries, such as China, India, Russia, and Brazil, that have access to labor or commodities that integrate labor such as fast food. Looking at the same value, the purchasing power of the renminbi is obviously much stronger in China than in the United States. India suffers even more in this case.
India's total GDP is $13 trillion based on purchasing power evaluation, but India's GDP is just over $3 trillion at international exchange rates. This is because there are differences in the level of science and technology and production efficiency of various countries, and international capital flows affect the exchange rate, and there are many goods and services that are difficult to affect the exchange rate through mutual exchange, which makes the international exchange rate impossible to completely equal to the comparison of purchasing power between currencies.
For example, the freshly made fast food in the market of our developing countries, although it is of high quality and low price, cannot be exported. For example, while the cost of manpower is high in the United States, the cost of land and energy is likely to be lower and the degree of automation is higher. When it comes to some products, the cost of the United States may have an advantage. After China's accession to the WTO, the upward pressure on the renminbi has persisted. After the exchange rate reform in 2005, the renminbi started a long-term appreciation path, from 100 million US dollars to 82 The renminbi appreciated to the strongest dollar in 2014 to 604 RMB. Behind the long-term appreciation of the renminbi is the continuous consolidation of China's position as the world's factory, and China's position in the global industrial chain has been continuously strengthened. With such strong fundamentals, even if the renminbi does not have a significant advantage over the U.S. dollar in the financial market, it will not be able to stop the renminbi from appreciating strongly. The reason is very simple, because in those years, China's export competitiveness was too strong, and foreign traders earned more and more dollars, and eventually these dollars needed to be settled in foreign currency, which were used for domestic procurement, investment, wages, and reproduction.
Foreign exchange settlement is to exchange a large amount of US dollars back to ** yuan. The long-term demand for foreign exchange settlement has been the core driver of the appreciation of the RMB from 8 to 6. Ten years ago, I was convinced, including me, that the renminbi would appreciate to a level of 5 or even stronger. But the development of many things is often not linear. In recent years, the global industrial chain and the first chain have undergone deep changes, and the global division of labor, especially the allocation of production capacity of multinational enterprises, has begun to be decentralized. So we see a trend in the RMB exchange rate.
First, cheap commodities and expensive assets. We have often heard a saying before, in the end, it is necessary to protect the house price or the exchange rate. This means that China's housing prices are very high, and you can buy the United States by selling a house in a few first-tier cities. So either the house price should be **, or the RMB should be **. But coincidentally, real estate is not a good product, and manpower can participate in manufacturing and foreign trade. Therefore, no matter how high the housing bubble is, it does not seem to affect China's export competitiveness.
It is impossible for us to export ** real estate in Beijing, Shanghai, Guangzhou and Shenzhen to the United States to earn a lot of foreign exchange. Even if there are foreigners living in China, the number of people who buy a house is definitely in the minority. Foreigners are generous renting in China, but they are not willing to buy a house because the rent-to-sale ratio is so distorted that it seems to them to be sky-high. In addition, even if there are some Chinese owners with strong assets who want to sell their homes and live a financially free life in North America, it is almost impossible for most people to exchange millions of dollars worth of renminbi. Because China's foreign exchange controls are very strict, not to mention millions of dollars, even if you want to exchange $500,000, it is more difficult than climbing to the sky. RMB-denominated goods, especially those with human participation, are generally cheap, but RMB-denominated properties and goods are very high. In terms of rent-to-sale ratio, the ratio of house prices to annual rents in China's first-tier cities is more than 60 times, and in the United States it is only 20-30 times. In terms of price-to-earnings ratios, the valuations of companies in China's major inter-African industries, such as technology, pharmaceuticals and consumption, are also significantly higher than those of similar companies in the United States. Therefore, there is a strange phenomenon that 100,000 square meters of cities can eat a breakfast for 10 yuan. This is not the second one that cannot be found anywhere else in the world.
Why is there such a phenomenon that the assets are extremely high, but the labor cost is ultra-low?It is not clear here, so the reader is left to think for himself. But there is one thing we can figure out, that is, the reason why the capital account is not open in China's foreign exchange management, probably because we found the meaning of the capital account is not open, to put it bluntly, ordinary people cannot exchange foreign exchange for investment, including overseas real estate and **. It is precisely because we are very high in both real estate and ***, if the capital account is opened at this stage, it will cause a large amount of capital outflow, so the high rise in assets only indicates that the height difference in the water level exists, and the water pressure exists, but we have the dam of foreign exchange control, so we can regard these non-** assets as potential shorts in the RMB exchange rate, and they are not the biggest threat at the moment.
In general, housing prices are a symbol of the financial cycle of wealth of China's urbanized residents, and the exchange rate is a symbol of China's industrial competitiveness and exports, and the two often complement each other. As a result, house prices and exchange rates will either hold on to them or neither. Different perspectives, different views, if you are just a melon-eating crowd in China and do not have the need for overseas consumption and investment, then the RMB is definitely a currency that you can hold with confidence. Because China has a huge industrial production capacity and continuous involution in manpower, but the market demand is relatively sluggish, the best management is enough, but the demand is insufficient, which makes China's prices likely to remain at a relatively stable level for a long time. In the 30 years after 1990, prices in Japan were almost non-existent.
Therefore, if someone still exaggerates your anxiety, saying that if you don't buy a house and invest the money in your hand, it will become waste paper. This kind of information can be blocked in the first place, because the facts are already in front of you, and those who have survived in the past year or two can easily beat 90% of home buyers and ** investors. I think that's going to continue. As a country with mature industrialization and a complete range of industries, it is unlikely that the purchasing power of the renminbi will be diluted as quickly as the currencies of Latin American countries. So whether you have RMB or US dollars, you must cherish them. If you have a need for overseas consumption and investment, the situation will become a little more complicated, and the future trend is not so easy to judge. The recent depreciation of the renminbi is due to a number of factors. These factors include the recent MLF interest rate cut, the exposure of risks in the domestic real estate market, such as the default of leading companies such as Country Garden and Sino-Ocean after Evergrande, the lower-than-expected macro data such as industrial investment and consumption in July, the lower-than-expected financial data in July, and the thunderstorm of Zhongrong Trust.
On the other hand, the Fed's continued interest rate hikes and the possibility of higher interest rates for longer have also led to a deepening of the interest rate inversion between China and the United States. At present, the annualized rate of return of the United States has reached 5%, while China's is only 16%。Undoubtedly, this will make the funds more inclined to exchange for dollars and get higher interest rates. U.S. economic fundamentals are not strong enough to support federal** interest rates above 5% for long periods of time, and U.S. long-term interest rates will eventually return to 3% or less. Once the Fed starts to cut interest rates, the pressure on the RMB may be released a lot, but this does not necessarily mean that the RMB will sit back and wait for the Fed to cut interest rates and gain appreciation. In the long run, China's interest rates will also fall. Now the mlf is 25%, and it is not impossible to reach 2% or even less than 2% in the future. In addition to the relative changes in interest rates, the most important factors that ultimately determine the exchange rate are China's industrial upgrading, foreign trade competitiveness, and international relations.
The renminbi exchange rate has risen again