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[It is expected that China's GDP deflator will turn from a year-on-year decline of 0.6% last year to a year-on-year growth of 0.1% this year, and will further grow by 1.8% in 2025 and 2.0% in 2026-2029, indicating that China's nominal economic growth rate will once again exceed the actual economic growth rate.]

Since July 25, the RMB exchange rate trading price at home and abroad has rebounded sharply, and hit the high point of this round of rebound on August 5. The trend of this wave of market has aroused heated discussions in the market. The author believes that if the US economy really falls into recession, it will lead to a sharp interest rate cut by the Federal Reserve and a weakening trend of the US dollar. The current situation may become a turning point for the RMB adjustment since 2022; if the US economy does not fall into recession, this time it will break the previous unilateral trend and brew a new round of two-way fluctuations.

The Asian financial crisis

The current situation facing my country is similar to that during the Asian financial crisis. At that time, affected by natural disasters and structural adjustments, as well as the Asian financial crisis and the strong dollar, my country's real GDP grew by 7.8% and 7.7% in 1998 and 1999, respectively, failing to achieve the goal of maintaining an 8% economic growth rate. At the same time, the consumer price index (CPI) fell year-on-year for 25 consecutive months from April 1998 to April 2000, and the industrial producer price index (PPI) fell year-on-year for 31 consecutive months from June 1997 to December 1999, and the country faced a deflationary trend. These two years were also the period when the RMB was under the greatest pressure.

After the outbreak of the Asian financial crisis, my country implemented a policy of not devaluing the RMB, so the pressure on the foreign exchange market was mainly reflected in the reversal of capital flows and the slowdown in the growth of reserves. From 1994 to 1996, my country's international balance of payments showed a "double surplus" in the current account and capital account (including net errors and omissions, the same below), and foreign exchange reserves continued to increase significantly. Among them, the capital account surplus averaged US$22.7 billion per year, and the foreign exchange reserve assets, excluding the impact of exchange rate and asset price changes, increased by US$27.9 billion per year. In 1997, affected by the Southeast Asian currency crisis triggered by the loss of the Thai baht, my country recorded a capital account deficit of US$1.2 billion for the first time since the exchange rate unification in 1994, but foreign exchange reserve assets still increased by US$34.9 billion, a record high. After that, the Southeast Asian currency crisis gradually evolved into the Asian financial crisis. In 1998 and 1999, my country's capital account was in deficit for consecutive years, with an average deficit of US$18.8 billion. Although foreign exchange reserve assets continued to increase, the average annual increase was only US$7.4 billion, far lower than the average annual scale of US$29.7 billion in the previous four years.