XCX (89) 3
Implications for China's economy
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(a) Exchange rate of Renminbi
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as is
But
The movement of the black market exchange rate since the first half of October last year can be interpreted providing further evidence that the rate of inflation peaking. In early October, the black market exchange rate of the Renminbi in Guangdong was down to Rmb 110-120/HK$100. at that level, buying support began to surface and the rate recovered to
to around Rmb 90-92/HK$100 in mid-November and to around Rmb 85/HK$100 in late December. With the advantage of hindsight, the very low rate recorded in early October probably involved some over-shooting which did not properly reflect the supply and demand situation. If the experience of the past few months is anything to go by, the exchange rate of the Renminbi in the black market could stabilise at around Rmb 80-95/HK$100. With the approach of the Lunar New Year, the rate may strengthen and move towards the upper end (i.e. Rmb 80/HK$100) of the range.
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The trading rate for the Renminbi in the foreign exchange adjustment centre in Shanghai is also
also reported to have risen from Rmb 7.06/US$ (Rmb 91/HK$100) on 10 November to Rmb 6.35/US$ (Rmb 81/HK$100) on 21 November 1988. In the second half of December, the rate is reported to have been fluctuating around Rmb 5.5 to
to 6/US$ (Rmb 71 to 77/HK$100). But it seems that the rates at which the Renminbi trades in the adjustment centres in different cities differ quit e significantly, probably because there is some rigging of the markets. In Shenzhen the rate was reported to be about Rmb 6.6/US$ (Rmb 84/HK$100) in early November, compared with Rmb 7.06/US$ (Rmb 91/HK$100) in Shanghai at about the same
time.
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(b) Resource allocation between the
domestic and the external sector
It was suggested in the previous note that inflation in China was likely to cause resources to be shifted to the domestic sector from the external sector and that the effect of this would be to reduce the growth rate of China's exports, while possibly also inducing some increase in import s. following table suggests that this may be occurring.
The