中国：人民币稳步升值能否吸引资本流入？

Asia Insights Economics - Asia ex-Japan China: Will steady RMB appreciation attract capitalinflows? Research Analysts Asia Economics Ting Lu - NIHKting.lu@nomura.com+852 2252 1306 The Chinese idiom “刻舟求剑”,which literally translates to "carve the boat to seek thesword", describes the misguided act of using rigid methods to solve problems in achanging environment. The story highlights the need for adaptability. Recently we haveseen a rising chorus calling for steady RMB appreciation to attract capital inflows to reflatedomestic property prices, end deflation and revive domestic demand. Although RMBappreciation before 2014 did attract massive hot money inflows, we believe theenvironment has changed vastly due to the entrenched expectations of falling homeprices, illiquid property markets, the endemic geopolitical challenges and tighter capitalaccount controls. In our view, steady RMB appreciation would not effectively reflate China’s economy and, regardless,it is already impractical due to the weak domestic demandcaused by the massive property crash since mid-2021. Jing Wang - NIHKjing.wang@nomura.com+852 2252 1011 RMB appreciation since early November 2025 RMB has been rising against USD since early November 2025, when the release ofOctober trade data pointed to an annual trade surplus of more than one trillion USD, thefirst time in history that a nation has achieved such a record. Despite this strong RMBappreciation narrative, the actual pace has been measured, with USD/CNY declining by3.2% from 7.12 on 6 November 2025 to 6.91 as of 6 March 2026. Due to USD’s owndepreciation against its own basket, RMB’s value against its trade-weighted basket hasrisen by only 0.4%. The rising chorus for supporting steady RMB appreciation While markets are guessing at the pace of RMB appreciation, economists have beendebating over whether Beijing should engineer a steady RMB appreciation. Sponsors of aguided, steady increase in RMB/USD claim that such appreciation could correct externalimbalances, moderate trade tensions, attract capital inflows to boost domestic assetmarkets (especially properties), end deflation and eventually deliver a more balanced andsustained recovery. They do recognize that exports are still a key growth pillar, so manyare suggesting a steady annual pace of RMB/USD appreciation at around 5%, whichseems neither too fast nor too slow. We believe the environment has changed and have a different view We have stated our view previously that executing a steady RMB appreciation isimpractical. InChina: The great divides, RMB, and the policy dilemma for Beijingpublished in December 2025, we argued that it would be difficult for Beijing to guidetowards a 5% annual appreciation of RMB/USD, and even more difficult to cement a 5%appreciation pace, given weak retail sales growth, a deep contraction of fixed assetinvestment and the perennial decline of the property sector. In our view, the root cause ofthe enormous trade imbalance is China’s weak domestic demand and deflation amid thebursting of its property bubble. Beijing should clean up the property mess and boostconsumption demand to end deflation. Even steady RMB appreciation would not generate substantial capital inflows In this report, we make another argument. We believe that, even with a firm and credibleannual 5% RMB/USD appreciation for a couple of years, capital inflows would not be verysignificant, due to the vastly changed environment, featured by the property crash,deflation, low interest rates, tighter capital controls and elevated geopolitical tensions.Steady RMB appreciation amid exceptionally weak domestic demand is impractical, andexpectations that RMB appreciation could attract substantial capital inflows to reflate theChinese economy seem extremely optimistic.Two recent moves by the PBoCpoint toBeijing’s rising concerns over the rapid pace of RMB/USD appreciation, especially the cutmade to the risk reserve requirement on financial institutions’ FX forward sales to 0% from20%. Estimating the “fast capital flow” We first provide a metric of “fast capital flows” (FCF), which refer to large, sudden andsometimes volatile surges of foreign funds into or out of a country's economy, often drivenby investor sentiment, the search for higher returns, including tapping interest ratedifferentials. While fast capital inflows can boost economic growth, provide technology andimprove productivity, they can also pose significant economic risk from a sudden reversal.Our purpose is to first measure the rise and fall of FCF over the past two decades, andthen examine the drivers behind them. We then assess whether current onshore andoffshore conditions are conducive to a pick-up in FCF, if Beijing uses its power to engineerRMB/USD appreciation. We define a “fast capital flow” (FCF) as the difference between two data points: 1) the netinflows of official trade and official direct investment, and 2) the net increase in FX assetsof the central bank an