China’s central bank decided over the weekend to let its currency trade in a wider range, and this move will have a lasting and positive impact on the economy of China, Jing Ulrich, chair of China equities and commodities at JPMorgan, told CNBC Tuesday.
“This is going to lead to a transition from export-lead, investment-lead to more of a consumption-lead economy going forward,” Ulrich said. “I think the ramifications are profound not just for the next few months but actually for the coming years.”
Ulrich also said she interpreted the move as a vote of confidence by Chinese leadership in the country’s economy.
Impact on Consumers
Ulrich added that the Chinese population is not overly concerned by the currency move.
“We saw the appreciation of the renminbi (yuan) from 2005 to 2007 every year for about five percent, so I think the population in general has gotten used to a gradual and incremental move on the currency,” she explained.
She predicted over the next three to five years, there will be an incremental appreciation of the renminbi of three to five percent on an annualized basis.
“Chinese consumers will feel a lot wealthier three years down the road, and I think this is going to boost domestic consumption as well as overseas travel, and I think this is going to be very positive for the underlying economy as a whole,” Ulrich further explained.
Impact on Exporters
Ulrich went on to explain why Chinese exporters, as expected, are not happy about the move.
“Exporters in China are facing a lot of pressure already on the margin front,” said Ulrich. “Labor costs are moving up, they also have challenges in the external market, especially Europe … On top of that if the renminbi begins to appreciate in the next few months, that means a lot of the low-end exporters will come under increasing pressure.”
On the brighter side, she said a move on the currency will mean exporters will have to go up the value chain. “This will help accelerate the transition from lower-end manufacturing to higher-end, higher value-added manufacturing," Ulrich added.
Impact on Real Estate
As for the currency move's impact on China's real estate market, Ulirch said the property bubble in China is already deflating. She noted that the government announced a slew of measures in April to try to contain speculation and inflation of asset prices in the county.
“So far, we’ve seen a pretty big correction already. Transaction volumes are down as much as 50 percent, and prices are beginning to come down as well,” she added.
Ulrich predicted that there will not be any additional economic tightening measures in the next few months so the market can digest the existing policies.