The rapid appreciation of the renminbi is surprising, and one wonders what is really going on behind the scenes. Recent data show that the RMB exchange rate has appreciated significantly, especially in the offshore market, and the exchange rate against the US dollar once exceeded 710, the intraday increase of more than 200 points, is from the beginning of the year 73415 appreciated all the way to 70957。Such staggering figures are staggering, but it is difficult to find a plausible explanation. At present, most of the analysis in the market boils down to the pause in interest rate hikes in the US dollar and the bullishness of the Chinese economy.
However, these two reasons do not seem to fully explain the magnitude of the renminbi's appreciation. Although the expected pause in the dollar's interest rate hikes will lead to an appreciation of the renminbi, it is doubtful whether its influence will be enough to support such a large appreciation. In addition, although the development of China's economy has its positive factors, the recent optimism of foreign countries and research institutions on China's economy is not widespread, and some are even pessimistic. Moody's downgraded China's sovereign rating outlook and downgraded or observed the ratings of hundreds of state-owned units, all of which are indicative of concerns about China's economy. While GDP growth** has been revised upwards in 2023, the increase is modest, while GDP growth for 2024 is more conservative. This makes people wonder if they are not optimistic about China's economy, then where does the confidence in the recent appreciation of the renminbi come from?
The reason behind this is that there is a massive increase in RMB positions in both onshore and offshore markets, and it is clear that the renminbi is being snapped up like crazy. The simple law of supply and demand tells us that if there are many buyers, **will**. So, has the number of people exchanging yuan decreased?In fact, this is not the case, and there are many people at home and abroad who exchange other currencies and assets for ** RMB on a large scale. So, who are these people and what are they trying to do?
It can be said that on the basis of analyzing theories and observational data, we can conclude that the expectation of US dollar interest rate hikes will inevitably form a general trend of the interest rate reduction cycle, which makes many capital parties around the world intend to enter the Chinese market. These capital parties may be investors from the United States, Europe, the Middle East, and even Japan and South Korea, among which it is not excluded that it may be an action planned by the United States**. The investment direction of these capital parties is not limited to **, but also includes other financial markets, technology and industrial investments, and the real estate market. Their optimism about China's economy is long-lasting, because the potential of the Chinese economy is self-evident. However, in addition to being optimistic about China's economy, there is more of a speculative mentality. Historically, there have been several US dollar rate hikes and rate cuts, and there has been a massive influx of US dollars and even euros and yen into China. As one of the beneficiaries of international capital, we have always been the second largest country in the world to use foreign capital, which also shows our attitude of opening up to the outside world. However, the influx of international capital has also brought some negative effects, such as pushing up the real estate bubble and housing prices, and exacerbating inflation. At the same time, when these capital parties began to withdraw, they also left us with a lot of problems, such as the real estate market and the first adjustment in recent years. Obviously, in a globalized market, China needs to do its best and improve its own level to prevent risks and make good use of foreign investment. Therefore, in 2024, China's economy will welcome a shock wave of international capital.
Reviewing this article, we re-examine the reasons behind the appreciation of the renminbi. While market analysis revolves around the pause in US interest rate hikes and bullishness for the Chinese economy, these explanations do not fully explain the magnitude of the renminbi's appreciation. On the contrary, we find that capital inflows are the main driver of RMB appreciation. Capitalists from all over the world are optimistic about the potential of the Chinese market and are actively entering the Chinese market in anticipation of the general trend of US dollar interest rate cuts, which has led to the rapid appreciation of the RMB exchange rate. However, this will inevitably bring some problems and risks, and we must take measures to maintain economic stability and sustainable development while leveraging foreign investment.
Nevertheless, we remain optimistic about China's future development. China's economy has a solid foundation and is capable of responding to various challenges. We believe that by improving its own standards, guarding against risks and making good use of foreign investment, China's economy can meet the shock wave of international capital and achieve a higher level of development.