Not surprisingly, RMB finally and initially appreciated! 2.1% percent in the first move, and 0.3% cap from 7/21/05. The impact is profound. So what is it?

1. Personally. I have foreseen it, so part of my capital is already RMB :) Usually, when everyone is talking about it, it is inevitable.

2. Generally. The RMB has a lot room for appreciation. I am going to make a bold prediction that RMB will appreciate for 20% (plus/minus 5%) in the next five years.

One of the many reasons is that China has constantly outpaced US for at least 5% in GDP. Apparently, I am not alone for such wild guess. Some investment companies yelled that too.

Although US Federal has raised interest of overnight loans between banks nine times in a roll from 6/2004 and more is coming as indicated by Mr. Green, China has raise interest only once. Once RMB severs its link with US dollar, China will the flexibility to gradually increase bank interest, which consequently will push RMB up.

The most obvious effect will be on the exporter/importer. Particularly, all exporters will has some extent of disadvantage. But personally, I don’t feel that affect much. The reason is simply, China has much cheaper labor and established manufacturing framework is big investment. As a “factory” of the world, Chinese companies usually get only 10% of the total profit. So there is much room for the downstream channel to redistribute the profit and control the price.

Another ripple would be on housing market. Looking for the next 5 years, Chinese housing market will cool off. The bank interest will rise, and a lot of foreign fund will cash in, both will hurt the sentiment of housing market.

For the IT industry, the impact is negative overall for software oriented corporations. Because the biggest competitive of China is India. When RMB appreciate, say 15%, which means US-based outsourcing companies will pay more, so they will shift even more to India.  For hardware aspect, the impact is positive neutral. It’s true that China is the largest computer hardware manufacture, for example, Notebooks, monitors, etc., but appreciated RMB will make all imported materials, essentially Chips, much cheaper, which account for a large percentage of the overall price. Therefore, while the labor and other cost will rise, the ripple will not spread out quickly.

After all, it is hard to change the fact that China has the largest population in the world. And the job market is on the seller side, in other words, amazingly competitive.

In my point of view, more Chinese companies in the same field should merge or form strategic partnerships, so that they can have more negotiation power on the table.

For US, the Federal will continue to lift the bank interest, otherwise inflation will go up, and dollar will further fall off.

For Chinese graduate and work in US, they will have less incentive to go back to China, over the long run, as the buying power is decreasing in terms of RMB. For some, it may not be a big deal, for others it may be.

All of these are just my thoughts. And, no matter how many pros and cons, RMB is surly appreciating. Our Chinese individuals in US should keep an eye on it, and act accordingly when you still can.