留学生作业写作：揭开中国货币被低估之谜

How China did it?
As seen like the $ 4 trillion stimulus package, the government is implementing mostly industry friendly policies. These policies promise high industry growth and also more employment. A high industry growth will be backed by large import of raw materials. China being a savings-oriented economy more than a consumption-oriented economy this high growth will lead to over-capacity of production. This means there is less inbound demand and there is more need for exports.

For creating sufficient demand in the export market China will have to lower its product prices, consequently decreasing wages evident from China's suppression of trade unions. Also for achieving these low prices of products Renminbi will have to depreciate in order to raise the margin of profits of exporting companies.

The forex reserves earned from exports and FDI again lead to increase in demand of Yuan and thus its appreciation. To prevent this PBOC is buying required amount of US bonds so that demand of dollar offsets demand of Yuan and no effect on exchange rate.

Why US is getting too much problem with Undervalued RENMINBI?
The reason is Bonds valuing of $889 billion which makes China the biggest holder of US treasury bonds and the biggest creditor of US. So, US wants the value of the Renminbi to get appreciated so that the value of US reserves with China will fall which will bring down Chinese economy leading to release in pressure of Debt. If the Yuan is appreciated that means if its value goes down then its beneficial for US as they will have to pay back less

For example: If they have taken bonds when the value is 1$=8 Yuan they have to pay back 800 Yuan but if the Yuan appreciates and comes down to 1$=6 Yuan then they just have to give back 600 Yuan which will be beneficial to US.

Secondly, because of the immense growth in the export market of China and the availability of cheap Chinese products in the US market, the domestic players are getting affected consequently leading to a rise in unemployment rate. It would be better for US if the Renminbi became stronger so that exporting will become more expensive for China and this will facilitate the domestic companies.

Whereas an appreciation in the Renminbi can also cause trouble to US as it will lead to inflation in the US and a decline in the real value of household income because the US consumers will lose the benefit of cheap Chinese products. The graph shows the positive trade balance of China vis-a-vis negative for US.

The Flip Side
Till now we have understood the impact of an undervalued currency on Chinese exports, employment and their corresponding impact on US. The responsibility for efficient allocation of $ 4 trillion stimulus was given to public sector banks. 1 trillion dollars were given to central government or to SOEs which lead to capital intensive production growth. The rest $3 trillion was the responsibility of local government or municipalities.

How does the government work it out? 政府是如何工作的？

Local Government Finance Vehicle: The local governments did not have the liberty to borrow money from the banks. So in order to raise this immense amount the local governments launched what is called Local Government Financing vehicl