Moderate Yuan Depreciation―More Good Than Harm.docVIP

Moderate Yuan Depreciation―More Good Than Harm 　　As the quantitative easing policy is gradually withdrawn by the U.S. Federal Reserve on the basis of economic recovery， the U.S. dollar will enter a phase of continuous interest rate increases. U.S. dollar’s appreciation will become an inevitable trend. Against this backdrop， the Chinese currency， the yuan， will face more depreciation pressure. As a matter of fact， the timing for the yuan to moderately depreciate has come， judging from both external and internal factors. Moderate depreciation of the Chinese currency is not only beneficial for economic recovery， but will also lift China’s A-share market. 　　External factors will inevitably create a weaker yuan. Right now， the U.S. economy is taking the lead in the sluggish global economy. While the dollar is bound to appreciate after interest rate increases， the eurozone and Japan continue to implement their monetary easing policies， which will lead to weaker euro and yen. 　　The International Monetary Fund （IMF） warned on July 23 that a further rise in the U.S. dollar as a result of the widening monetary policy gap between the United States and other major economies could have a significant negative impact on other countries. In its annual spillovers report， the IMF said lower oil prices， more monetary stimulus in the eurozone and Japan and expectations for interest rate rises in the United States and Britain have created a “spillover-rich” environment. The depreciation of non-dollar currencies will cause global capital to flow out of emerging markets and into the U.S. market， leaving the yuan with depreciation pressure. 　　Domestic factors also stand in the way of a stronger yuan. An increase of productivity and strong economic rebound has yet to come in China. A country’s exchange rate is ultimately determined by its productivity. With rising labor costs， the growth rate of salary is higher than that of the GDP in China， which actually leads to declining produc