On August 11, 2015 (June 27, 2015 lunar calendar), the People's Bank of China announced the improvement of the central parity rate of the RMB against the US dollar. On the morning of August 11, 2015, the central bank announced that the central parity rate of the RMB against the US dollar was set at 6.2298, a depreciation of 1,136 points from the previous trading day, a decrease of 1.9%, the largest one-day decline in history. The market exclaimed that the RMB has finally depreciated. Although this reduction can be said to be almost unprecedented, there is no need to overexplain the current depreciation of the RMB exchange rate. It is more due to the economic situation. A small depreciation of the RMB exchange rate can effectively increase the flexibility of the RMB exchange rate. After the central parity rate of the RMB against the US dollar plunged more than 2,000 points for two consecutive days on the 11th and 12th, the central parity rate of the RMB against the US dollar fell again by 704 points to 6.4010 on Thursday, setting a new low since August 2011. The continuous devaluation of the RMB has triggered turmoil in global markets, and stock markets in Europe and the United States have continued to fall. After Tuesday's sharp decline, German stocks fell another 3.27% on Wednesday. On the 13th, the RMB fell by more than 1% against the US dollar again, which is the third consecutive exchange rate reduction. Beijing let the RMB depreciate in one go on the 11th. In the past two days, the exchange rate adjustment has caused the RMB to fall by about 4%. The central bank raised the RMB against the US dollar by 0.05% on the 14th, ending a three-day losing streak following the unexpected devaluation of Why did the People's Bank of China choose to let the RMB depreciate sharply at this time? Previously, the RMB has been pegged to the US dollar, and the US dollar index has risen by nearly 20% in the past year, so that the RMB has also passively appreciated with the US dollar against other currencies. This means that as the US dollar continues to appreciate, China's export competitiveness relative to some of its most important trading partners has decreased. Figure 1 The trend of major trading partner currencies against the RMB In the past 12 months, Europe and the other five countries (regions) mentioned above purchased a total of 1.10 trillion US dollars of imports from China, accounting for 45% of China's total exports. Most of these countries (regions) have increased their imports from China compared with the previous year. But these countries' currencies have depreciated by an average of 20% against the yuan, making it much more expensive to import from China. Economists suspect that China is simply using the market-oriented exchange rate as an excuse to disguise the devaluation to boost exports. Graph 2 GDP growth in China, China's main export destination, has fallen from double digits in 2009-2010 to 7% today, and some analysts believe that even this growth rate may have some moisture. China's manufacturing sector has performed very poorly in recent months, with export data released on Saturday falling 8.3% year-on-year in July. Figure 3 The trend of China's exports and the 12-month average The international monetary fund (IMF) said that the new way for the Chinese government to control the currency - the previous day's closing price as the second day's midpoint price - has taken an important step towards the marketization of the exchange rate. According to reports, on Wednesday, the People's Bank of China intervened in the excessive devaluation of the RMB. But the devaluation of the RMB has raised fears of a currency war and may cause the Federal Reserve to delay the plan to raise interest rates. In the case of a devaluation of the RMB, who will lose their interests? The first category: investors There are investors. Analysts say that historically, the RMB has been highly correlated with the movement of class A shares. Under the general trend of RMB appreciation, RMB depreciation may be accompanied by a decline in class A shares. The reasons for the connection between the two are: on the one hand, RMB depreciation triggers a decline in the valuation of local currency assets, resulting in a weakening of related sectors such as finance and real estate, which drags down the overall market; on the other hand, once the expected RMB depreciation is formed, it will lead to the outflow of hot money, and the liquidity environment in which class A shares are located will quickly tighten. Some institutional reports have pointed out that a sharp depreciation of RMB may bring a greater financial burden to airline companies and some real estate companies with heavy overseas financing burdens, which in turn will value relevant stocks and even local real estate sales prices. Coping strategy: Some analysts pointed out that from the experience of 2012, the performance of defensive industries such as public utilities, telecommunications and medical care is not affected by factors such as macro uncertainty and currency fluctuations. The second category: real estate investors There is a "coincidence" that the assets of people who own real estate may shrink: the 9 years of continuous appreciation of the RMB are also 9 years of continuous rise in real estate prices in China. In 2005, after the RMB started to appreciate, there was a clear signal: long-term appreciation against the US dollar. In theory, a large number of US dollars will enter China and be exchanged for RMB assets to avoid the relative depreciation of the US dollar. After these US dollars enter, they exist in the form of certain assets. Most of them are buying real estate. One of the reasons for the sharp rise in housing prices in the past few years is the appreciation of the RMB. In this process of appreciation, people who own real estate have rapidly appreciated their assets. The expectation of real estate appreciation has stimulated the desire of more people to buy houses. If the RMB depreciates, some investors are worried that assets will withdraw from real estate, especially those funds that entered the country from overseas in the early stage will flow out of China due to the depreciation of the RMB, or dare not enter the Chinese market easily, which will help domestic housing asset prices fall. Coping Strategies: Some analysts say that for third- and fourth-tier cities, housing prices are more likely to fall, and it is not suitable to sell at present. The better way is to wait and see. The third category: international students For students studying in the United States, this also means that the same yuan will be exchanged for much less foreign exchange than before. Bankers revealed that this round of sharp decline in the RMB has also caused panic among some parents of international students. Parents who exchange US dollars are also nearly 10% more than usual. Coping strategy: Buy in batches to share the risk. Industry experts suggest that customers who plan to use foreign exchange in the short term can observe the exchange rate fluctuations for a few days, find a relatively low level to start, and share the risk in batches. Especially for customers who plan to study abroad, the amount of foreign exchange funds is relatively large, and they can exchange foreign exchange for foreign currency financial management first. The fourth category: The overseas purchasing market of Haitao people is hot, and price is one of the key factors. The price of goods purchased from overseas Haitao is generally about 30% cheaper than that purchased at domestic counters, and some can even be half cheaper. This is also the reason why many Haitao people are reluctant to go far. However, if the RMB depreciates, many Haitao people will feel "lost" because the price of some overseas goods they buy will rise. Coping strategy: Under normal circumstances, Haitao is often divided into two settlement methods: foreign currency account and RMB account. Foreign currency account is the credit card consumption is settled in foreign currency, and the cardholder needs to repay in foreign currency; if there is no foreign currency in hand, he needs to use RMB to buy foreign exchange to repay. If the cardholder has enough foreign currency in hand, the method of direct repayment in foreign currency does not involve cost increase. The fifth category: the cost of overseas travel for people who travel abroad is facing an increase. Coping strategy: It is more cost-effective to buy foreign exchange first. Financial planners remind that many people like to use credit cards for shopping when traveling abroad. If the RMB is appreciating, deferred repayment can actually reduce the amount of money. But if the RMB continues to depreciate, it is best to consider exchanging all the cash before going abroad. The sixth category: The devaluation of the RMB by large export enterprises is theoretically beneficial to exports, and some small export enterprises that settle foreign exchange immediately may benefit from it. And foreign trade enterprises with large trading volume may not feel the positive impact of this round of devaluation because they locked the exchange rate with the bank beforehand. Coping strategy: Analysts say that in order to reduce the risk caused by exchange rate fluctuations, foreign trade enterprises need to lock in exchange rate risk through some foreign exchange derivatives, such as forward settlement and sale of foreign exchange, foreign exchange swaps, and foreign exchange options. In order to avoid risks, the strategy of import and export enterprises is very simple: import enterprises only need to delay the purchase of foreign exchange as much as possible, because the dollar will become cheaper and cheaper relative to the RMB. Seventh category: companies that are long the RMB. In recent years, as the RMB has steadily appreciated against the dollar, domestic companies have been long the RMB to ensure stable export income, and some companies have borrowed money to bet on the appreciation of the RMB. This has amplified the gains from the appreciation of the RMB, but also exacerbated the losses caused by the depreciation of the RMB. As the RMB has fallen against the dollar this year, more and more investors who bet on the appreciation of the RMB have suffered losses. Those companies and individuals who have used the popular method of "target redeemable forwards" to hedge the RMB risk have suffered huge paper losses. The eighth category: speculators who come to invest in China. For a long time, a large number of foreign investors have been wandering in China to make money. There is such a joke: an American who comes to China to eat and drink, and when he leaves, he converts the rest of the money into US dollars, which is equivalent to eating and drinking for free for a year. If the RMB depreciates, offshore RMB long speculators will lose a lot.