Opinion Leader | Shen Jianguang
Since 2024, the US dollar index has remained strong. As of May 14, the US dollar index has risen by 3.6% in the year. At the same time, the central parity rate of RMB against the US dollar has remained at about 7.1, and the RMB has risen steadily against a basket of currencies. The China Foreign Exchange Trading Center (CFETS) RMB exchange rate index has appreciated 4.3% since its low point in July 2023. In my opinion, in the context of the current strong US dollar, the steady rise of the RMB exchange rate is mainly related to the following five factors.
First, China's economic performance in the first quarter of 2024 exceeded expectations. In the first quarter, China's economy grew faster than expected, with real gross domestic product (GDP) growing 5.3% year on year, higher than 5.2% in the fourth quarter of 2023 and the whole year. Among them, service consumption and manufacturing investment increased significantly.
The travel enthusiasm during the Spring Festival holiday was high, and the service consumption recovered rapidly. In the first quarter, the retail sales of the service industry increased by 10.0% year on year (the catering revenue increased by 10.8% year on year), significantly faster than the retail sales of commodities by 4.0%. From the household survey data, the per capita service consumption expenditure of residents increased by 12.7% year-on-year, higher than the overall per capita consumption expenditure of 8.3%; Service consumption expenditure accounted for 43.3%, 1.6 percentage points higher than the same period in 2023.
With the support of strong credit and a new round of large-scale equipment upgrading, investment in manufacturing grew rapidly. Manufacturing investment in the first quarter increased by 9.9% year on year, 3.4 percentage points higher than that in 2023; Investment in high-tech manufacturing increased by 10.8%, including 42.7% in aerospace and equipment manufacturing. In addition, investment in high-tech services increased by 12.7%, including 24.6% in e-commerce services.
Second, export growth picked up. From January to April 2024, exports denominated in RMB increased by 4.9% year on year, significantly better than 0.6% in 2023. The contribution rate of net exports to GDP growth in the first quarter rose to 14.5%, the highest since the fourth quarter of 2022. Behind this is the resilience of overseas demand in the context of global economic recovery.
From a country by country perspective, China's import and export trade with emerging economies and countries jointly building the "Belt and Road" is growing faster than the whole. ASEAN is China's largest trading partner. From January to April 2024, the total trade value between China and ASEAN will be 2.18 trillion yuan, an increase of 8.5%, accounting for 15.8% of China's total foreign trade value. Among them, China's export to ASEAN reached 1.32 trillion yuan, up 10%. In addition, over the same period, China's imports and exports to countries jointly building the "Belt and Road" totaled 6.54 trillion yuan, up 6.4%, of which exports totaled 3.64 trillion yuan, up 6.7%, strongly supporting the recovery of overall export growth.
In terms of categories, the export of consumer electronics has improved, and the performance of integrated circuits and automobiles is particularly outstanding. From January to April 2024, China exported 4.62 trillion yuan of electromechanical products, an increase of 6.9%, accounting for 59.2% of the total export value. Among them, automatic data processing equipment and its parts and components reached 434.92 billion yuan, up 9.7%; Integrated circuits totaled 355.24 billion yuan, up 23.5%; Automobiles totaled 254.85 billion yuan, up 24.9%.
Third, the trend of policy relaxation is becoming more obvious. In terms of fiscal policy, in the fourth quarter of 2023, an additional 1 trillion yuan of national debt will be issued, and in 2024, an additional 1 trillion yuan of ultra long-term special national debt will be issued. In addition to the special bonds of local governments, other inward funds and other tools to expand fiscal expenditure, the broad fiscal expenditure will be significantly increased. In terms of monetary policy, since 2024, the People's Bank of China has successively reduced the agricultural support small refinancing, rediscount interest rate by 0.25 percentage points, and overall reserve ratio by 0.5 percentage points. For 15 consecutive months, it has increased the amount of medium-term lending facilities (MLF) to provide liquidity, and the five-year loan market quoted rate (LPR) has also been significantly reduced by 25 basis points. Monetary policy has been increasing counter cyclical adjustment efforts. In terms of real estate policy, major cities across the country have successively relaxed real estate purchase restrictions. As of May 9, 2024, only Beijing, Tianjin, Shanghai, Shenzhen, Guangzhou, Zhuhai and Hainan are still limited in the property market nationwide.
Fourth, foreign capital re flowed into Hong Kong shares and China concept shares. During the May Day holiday, driven by overseas funds, RMB assets led the global rise. The NASDAQ China Golden Dragon Index rose 5.5% to 6682.6, a new high since October 2023, and the MSCI China Index rose 4.4%. The Hang Seng Index and Hang Seng Technology Index rose 7.3% and 4.0% respectively, leading the world's major stock markets. Recently, the China Securities Regulatory Commission (CSRC) released five capital market cooperation measures with Hong Kong, which boosted market confidence. Foreign investors' recognition of the undervalued and relatively high growth of RMB assets continued to rise, and their sentiment towards China continued to improve.
Fifth, the increase of overseas geopolitical risks has dragged down other currencies. At present, the intensification of the situation in the Middle East has exacerbated the fluctuation of the US dollar. The military conflict between Palestine and Israel has continued, the ceasefire talks have reached an impasse, and the "pro Pakistan" protests by American universities have intensified. All these have intensified the risk aversion, pushed the gold price up sharply and suppressed the appreciation of the US dollar. At the same time, the Ukrainian crisis also continued to suppress the euro. Since 2023, the economy of the euro area has continued to be depressed, and the euro has been weak. The exchange rate of the euro against the dollar has remained at 1.05-1.1.
Driven by the above five factors, the RMB has stabilized and recovered recently, and has appreciated against many non US currencies. Looking forward to the future, China's macro fundamentals are still improving. In terms of policy, we will continue to deepen reform in the long term, strengthen short-term fiscal and monetary policies, and continuously release new quality productivity. In addition to the interest rate cut by the Federal Reserve in the second half of the year and the global geopolitical turmoil, the RMB exchange rate has a foundation and conditions to maintain basic stability.
(The author of this article introduces: Vice President of Jingdong Group, Chief Economist of Jingdong Technology Group, President of the Research Institute)
