The RMB can appreciate significantly.

Source: Hong Kong Economic Journal

The RMB has significant room for appreciation. To give two simple examples: the exchange rate between the Hong Kong dollar and the US dollar is fixed, and Hong Kong residents know that shopping and consumption in Shenzhen is at least half the price of Hong Kong.

In 2024, my country's GDP (GDP) is135billion yuan (approximately19Trillion US dollars), accounting for 29% of U.S. GDP(29trillion US dollars)65%. However, calculated using purchasing power parity, China's GDP is $38 trillion, exceeding that of the United States by 31%. Therefore, if the RMB exchange rate against the US dollar gradually appreciates by 50% over the next five years, reducing the undervaluation by half to 25%, this is not only supported by fundamental factors but also beneficial to China in many ways: a steady appreciation will bring the RMB closer to its purchasing power, increase household wealth effects, and help expand consumption. Moreover, in an international market environment where trade protectionism is on the rise, it will also help China improve its relations with its trading partners. Moreover, China's nominal GDP surpassing that of the United States is of great strategic significance. The various measures taken by the United States to contain China's rise are aimed at maintaining its nominal status as the world's largest economy. Once China's economic size surpasses that of the United States in dollar terms, its suppression will lose its meaning, and Sino-US relations are expected to fundamentally improve. Because China's population is four times that of the United States, even if China's GDP is comparable to that of the United States, China's per capita GDP is still only a quarter of that of the United States, indicating that China's economic growth still has enormous potential. Generally speaking, floating exchange rates automatically adjust a country's balance of payments. When there is a deficit in the balance of payments, the currency depreciates, making exports cheaper and imports more expensive, thereby reducing the deficit. Conversely, a surplus will cause the currency to appreciate, producing the opposite effect. However, my country has maintained a current account (trade and services) surplus for 32 consecutive years (1994-2025), far exceeding the capital account deficit, resulting in accumulated foreign exchange reserves of up to US$3.3 trillion. Logically, these fundamental factors should drive the RMB to appreciate. However, why does the actual exchange rate still significantly undervalue the RMB? This likely reflects market doubts about China's economic prospects and expectations regarding the central bank's intentions, rather than a lack of fundamental support. While it's difficult for any central bank to reverse market exchange rates, it can guide market expectations to gradually align with the currency's intrinsic value. There are numerous precedents for this in the history of reform and opening up. In 1993, the unofficial market exchange rate once reached 11 yuan to 1 US dollar (the official exchange rate was 5.8). On January 1, 1994, the People's Bank of China unified the exchange rate, fixing it at 8.7 yuan to 1 yuan. The US dollar (which depreciated against the official exchange rate but appreciated against the unofficial market rate) achieved this effect thanks to the central bank's guidance, namely sending a strong signal of determination to the market, rather than using foreign exchange reserves to support the yuan. As a result, foreign exchange reserves not only did not decline, but increased significantly, from US$212 billion at the end of 1993 to US$516 billion at the end of 1994. The exchange rate of RMB surged by 2.4 times, reaching $100 million. Since then, the RMB has never fallen below its exchange rate at the time of the unification, and has generally shown an appreciating trend. Similarly, during the Asian financial crisis of 1997-98, many Asian countries' currencies depreciated sharply. China pledged not to depreciate the RMB, maintaining its exchange rate stability and winning widespread praise from international public opinion. During the 2008-09 global financial crisis, China once again demonstrated this resolve, with the RMB remaining strong and appreciating. History has proven that the market will automatically drive the RMB to appreciate by following the central bank's clear guidance, without the need for continuous central bank intervention. Despite China maintaining GDP growth of over 5% annually since 2023, the country urgently needs to reduce its reliance on exports and expand domestic demand. In 2023, final consumption contributed 85.6% to economic growth, while net exports (i.e., exports of goods and services minus imports) contributed a negative 11.4%; however, in 2024... In 2016, the contribution of final consumption to growth fell sharply to 44.5%, while the contribution of net exports surged to 30.3%. This composition remained almost unchanged in the first three quarters of 2025 (consumption's contribution to economic growth was approximately 53.5%). Net exports were 29%. A stronger RMB will help reduce the share of net exports in economic growth, help bring the contribution of consumption back to 2023 levels, and, by promoting foreign investment inflows, more effectively maintain the sustainability of economic growth. There's a saying that Japan's "lost decades"—a prolonged economic recession—were caused by the sharp appreciation of the yen after the Plaza Accord in 1985, and therefore China should avoid repeating Japan's mistakes. However, this lacks analysis of the deeper reasons for Japan's economic recession. In 1985, the yen's exchange rate against the dollar was largely consistent with its purchasing power parity implied exchange rate, and it was not undervalued. By the same standard, the renminbi's exchange rate against the dollar is severely undervalued today. More importantly, Japan's long-term economic stagnation was mainly caused by policy mistakes. Japan adopted excessively loose monetary and fiscal policies, which rapidly created a massive asset bubble: between 1985 and 1990, Tokyo real estate prices skyrocketed threefold, while the Nikkei index soared nearly fourfold. The Bank of Japan began tightening monetary policy in 1989, but this was not only too late, but also too weak. At the beginning of the bubble burst, the Bank of Japan actually intensified its tightening efforts, leading to a spiral of asset price collapse. Tokyo housing prices fell by 60% between 1991 and 2009, while the Nikkei index fell by 1989. leaf="">12Month arrives2009Year3Monthly losses are as high as80%. The situation in China is quite the opposite. After several years of decline in the real estate and stock markets, household wealth has shrunk, consumer confidence is low, and the willingness to spend money is not high. Instead, people are depositing their money in banks or paying off their mortgages in advance. From 2015 to 2019, over a period of 5 years, household disposable income grew at an average annual rate of 8.8%, and personal savings increased annually. leaf="">10.2%; in2020To2024's5In mid-year, the annual growth rate of disposable income dropped to