Appropriate adjustment of RMB exchange rate policy, to resolve the risk of trade war is precisely to protect the interests of the Chinese economy means. More importantly, the moderate appreciation of the yuan, also in line with the requirements of the domestic economic restructuring. In the discussion of exchange rate policy, we must first make the current exchange rate of a judge. Domestic and foreign academics in the end the yuan is undervalued against the number of different views, but may be underestimated that there is consensus. Be it China’s external economic imbalances or see a substantial increase in productivity over the past 30 years, modest appreciation of the yuan is determined by economic fundamentals, rather than create new distortions.

Of course, since the RMB exchange rate mechanism is a managed float, it is not simply determined by market supply and demand, the government in the implementation of the policy adjustment, should be taken into account the economic situation at home and abroad.

According to my understanding, June 19 no significant appreciation of the yuan since, mainly for two reasons, first, the worsening debt crisis, Europe to increase the world economy, “second bottom” of the risk, or by export industries representatives put pressure on domestic interest groups, especially the government worried that the decline in exports, leading to job losses. These problems are real, however, is like a stress test done by some departments are warning, more than 3% appreciation of the renminbi could give the economy a devastating blow? I’m afraid not, at least this is China in 2005 -2 008 years, the steady appreciation of the yuan is not consistent when the economic situation.

Even considering the domestic economic interests alone, moderate appreciation of RMB has also been an inevitable choice, the remaining question is only how to control speed and avoid the large appreciation of speculative capital flows.

First, the exchange rate adjustment is to eliminate an unbalanced economic structure and the necessary measures. Over the past seven years, China has been trying to adjust economic structure, the imbalance problem is getting worse. The key is that China mainly relies on a number of administrative means, such as through the National Development and Reform Commission control the investment scale, but did not really touch on incentives. Exchange rate distortions not only affect the external economic relations, but also directly reduce the relative price of non-trade sector, exports too much, lack of services developed and consumption are more or less related to the RMB is undervalued. Premier Wen Jiabao have repeatedly pointed out that the current growth patterns unsustainable.

Second, the rigid exchange rate mechanism has been threatening the independence of monetary policy. In accordance with international economic policy, “not triangle” principle, China’s current economic policy framework is to choose an independent monetary policy and stable exchange rates, in order to protect these two, it requires strict control over capital projects. The question now is, with the increasingly open economy, capital controls declining effectiveness, this has adversely affected the development of the central bank interest rates and liquidity policies. If we think that independent monetary policy is essential, then, to give up the past too rigid exchange rate regime has become the only choice.

Third, do not adjust the exchange rate policy may result in a trade war imminent. We can certainly criticize the United States Congress is the anti-WTO principle of the bill, but a trade war breaks out, we will have to bear the consequences with the United States. Of course, American society is not monolithic. Recently, an American expert told me that since the June 19 exchange rate did not change significantly, so that the more China-friendly hard to scholars and businessmen in public support for China’s policy stance.

China and the U.S. has become the world’s largest economies, therefore, the policy game the two countries will become the norm. We naturally can not passively pushed by the United States, but sometimes compromise is necessary, compromise is in order to protect their own interests most.

Therefore, we need every inch in policy discussions, but the time required in decision-making more global view, can not be held hostage to individual interests. More importantly, the decision-making needs of forward-looking, as that mountain rain will come, may wish to pre-make some adjustments, later also room for bargaining. Beginning to do nothing until the last minute had to adjust, put itself into a passive position, and very detrimental to the policy of the next round of games.

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