Core Viewpoint - The article argues that the Chinese yuan is not significantly undervalued, challenging the notion that the price of a Big Mac in China compared to the U.S. indicates a misalignment in exchange rates. It emphasizes that using such simplistic comparisons can be misleading due to various economic factors that influence currency valuation [3][5][24]. Group 1: Theoretical Framework - The concept of absolute purchasing power parity (PPP) is introduced, which suggests that identical goods should have the same price when adjusted for exchange rates. This is based on the law of one price [3][7]. - The article highlights three main flaws in using the law of one price to assess exchange rates: it applies only to tradable goods, the conditions for its validity are rarely met, and it overlooks the significant impact of asset prices on exchange rates [4][8][24]. Group 2: Non-Tradable Goods and Price Composition - A significant portion of the costs associated with a Big Mac in China is derived from non-tradable goods, such as labor and rent, which constitute over 70% of its price. This makes it inappropriate to use the Big Mac as a benchmark for tradable goods [12][24]. - The article provides specific data showing that labor accounts for 45.6% of the Big Mac's price, while rent and electricity contribute 4.6% and 5.1%, respectively [12][24]. Group 3: Income Levels and Price Disparities - The article discusses the Balassa-Samuelson effect, which explains that higher-income countries tend to have higher absolute price levels due to greater productivity in tradable sectors, leading to increased wages in non-tradable sectors as well [9][24]. - It notes that even when comparing similar products, prices in high-income countries are generally higher than in low-income countries, which contradicts the absolute PPP theory [9][10]. Group 4: Capital Flows and Market Expectations - The article emphasizes that capital flows and market expectations play a more significant role in determining exchange rates than commodity prices, especially in a global economy where foreign exchange transactions far exceed trade volumes [22][24]. - It contrasts the classical view of exchange rate determination with a Keynesian perspective, which suggests that exchange rates do not necessarily converge to a single equilibrium value and can be influenced by speculative capital movements [23][24].

Core Viewpoint - The evaluation of the Renminbi (RMB) exchange rate should not be limited to its value against the US dollar but should consider a basket of currencies and the actual effective exchange rate, as the RMB's competitiveness is increasingly driven by industrial upgrades and import substitution rather than currency depreciation [1][4]. Group 1: RMB Exchange Rate Trends - The RMB has transitioned from a one-way appreciation to a two-way fluctuation since early 2014, with significant volatility observed post the "8-11 exchange rate reform" in 2015, where the RMB experienced fluctuations of 10%-15% [2]. - During the pandemic, the RMB depreciated to 7.19 against the USD but rebounded to around 6.3 in 2022 due to China's effective pandemic control and its role in the global supply chain [2]. - Over the past year, the RMB has shown an overall appreciation of approximately 5%, decreasing from a high of 7.4 to around 7.0 [2]. Group 2: Effective Exchange Rate Assessment - The RMB exchange rate index has shown a weakening trend, despite a 5% appreciation against the USD in the first half of the year, indicating that the nominal effective exchange rate is not the sole indicator of currency strength [3][4]. - The actual effective exchange rate (REER) is crucial for assessing export competitiveness, as it reflects the true value of the currency against a basket of currencies [3][4]. Group 3: Trade Competitiveness and Currency Management - China's export competitiveness has improved significantly over the past thirty years, with recent strong performance in the electric vehicle sector and enhanced import substitution capabilities, indicating a reduced reliance on currency depreciation for export stimulation [10]. - The RMB's nominal effective exchange rate has increased by 40% from 2005 to 2025, aligning closely with the projected annual appreciation rate of 2% based on the Balassa-Samuelson effect [6]. - The historical analysis shows that the RMB's effective exchange rate is currently undervalued by approximately 24%, primarily due to inflation differentials between China and Western countries [9]. Group 4: International Balance of Payments and Exchange Rate Dynamics - The relationship between the exchange rate and international balance of payments is bidirectional; while the exchange rate is influenced by the balance of payments, it also affects it [12]. - Recent trends indicate that changes in RMB exchange rate expectations have led to significant shifts in capital flows, with a surplus in currency conversion reflecting a positive outlook on the RMB's value [12].

Core Viewpoint - The forum at Fudan University aims to analyze the current macroeconomic financial situation, focusing on the RMB exchange rate and its driving factors, with insights from various experts in academia and industry [1]. Group 1: RMB Exchange Rate Analysis - Professor Shen Guobing emphasizes that the traditional view of currency depreciation benefiting trade is outdated, suggesting that RMB appreciation could lower import costs and enhance national welfare [3]. - Wang Han from Industrial Securities notes that the RMB may face upward pressure against the USD due to potential weakening of the dollar, with a possible target of 6.7, while the People's Bank of China will manage market expectations to prevent excessive appreciation [5]. - Wu Xinru presents data indicating that the RMB's actual effective exchange rate may be undervalued by about 24% compared to equilibrium levels, asserting that export competitiveness relies more on industrial upgrades than on currency depreciation [7]. Group 2: Future Outlook and Risks - Professor Feng Ling highlights that the RMB's stabilization in 2025 is supported by improved external conditions and record trade surpluses, but uncertainties in 2026 may arise from U.S. monetary policy and political events [9]. - Tang Jianwei from the Bank of Communications predicts a moderate appreciation of the RMB in 2026, with expected fluctuations between 6.8 and 7.15, while cautioning against external political risks [11]. - The discussion reveals a consensus that the traditional "devaluation promotes exports" logic is outdated, with RMB appreciation driven by multiple factors, while uncertainties remain regarding U.S. monetary policy and geopolitical developments [15].

1. Report Industry Investment Ratings No specific industry investment ratings are provided in the report. 2. Core Views of the Report - The market last week was characterized by the strong rise of non - ferrous metals and the accelerated appreciation of the RMB. There are risks of correction in non - ferrous metals and uncertainties in the long - term appreciation of the RMB [2]. - The stock index is expected to be volatile and strong in the short term, but there is pressure to continue rising; the bond market is not pessimistic in the medium term, and short - term trading should maintain a band - trading idea [5][7][8]. - The SCFI European line has a complex market situation with both positive and negative factors, and there are uncertainties in the future trend [9][10][12]. - In the non - ferrous metals market, platinum and palladium have high - level volatility, and there are opportunities for long - term price increases but short - term risks; gold and silver are still strong, but silver has high price risks; copper, aluminum, zinc, tin, etc. have different price trends and influencing factors [14][19][21]. - In the black market, steel prices are expected to be volatile, iron ore is neutral with price support and pressure, and the situation of coking coal and coke depends on factors such as production resumption [33][34][36]. - In the energy and chemical market, the oil price is in a low - level shock, and the performance of various chemical products such as LPG, PTA - PX, MEG - bottle chips, etc. is affected by factors such as supply and demand and macro - policies [44][45][48]. - In the agricultural products market, the supply and demand of live pigs need to be verified, the performance of oilseeds, oils, cotton, sugar, etc. is affected by factors such as supply and demand relationship and policy [82][83][86]. 3. Summaries According to Relevant Catalogs Financial Futures - **Macro**: The market is influenced by factors such as the two - main - line characteristics of non - ferrous metals and RMB appreciation, and there are risks in the short - term rise of non - ferrous metals and uncertainties in the long - term appreciation of the RMB [1][2]. - **RMB Exchange Rate**: There is a discussion about the long - term appreciation of the RMB, but there are limitations in applying relevant theories. The narrowing of the Sino - US interest rate differential is the core trigger for appreciation, and there are potential risks [4]. - **Stock Index**: The stock index is expected to be volatile and strong in the short term, but there is pressure to continue rising, and it is necessary to pay attention to the breakthrough of the index [5][7]. - **Treasury Bond**: The bond market is not pessimistic in the medium term, and short - term trading should maintain a band - trading idea [8]. - **Container Shipping European Line**: The SCFI European line has a complex market situation with both positive and negative factors, and there are uncertainties in the future trend [9][10][12]. Commodities Non - Ferrous Metals - **Platinum & Palladium**: There is high - level volatility, and the long - term price is expected to rise, but there are short - term risks. Attention should be paid to factors such as policy adjustments and market supply and demand [14][15][17]. - **Gold & Silver**: They are still strong, but silver has high price risks, and short - term trading should be cautious [19][20]. - **Copper**: The price is affected by the game between industrial and speculative funds, and there are risks in trading around the New Year [21][23]. - **Aluminum Industry Chain**: Aluminum is expected to be volatile and strong, alumina has an oversupply situation, and cast aluminum alloy is recommended to pay attention to the price difference with aluminum [24][25]. - **Zinc**: It is expected to be in a wide - range shock [26][27]. - **Tin**: It is expected to be in a wide - range shock, and there is limited upward space in the short term [27]. - **Lithium Carbonate**: There is a risk of short - term callback, but there are opportunities to build long positions in the medium and long term [28][29]. - **Industrial Silicon & Polysilicon**: Industrial silicon has limited short - term improvement in fundamentals, and polysilicon is in a shock state. Attention should be paid to technical aspects [30][31]. - **Lead**: It is expected to be in a shock range [32]. Black Metals - **Rebar & Hot - Rolled Coil**: Steel prices are expected to be volatile, with support from the cost side and pressure from demand [33][34]. - **Iron Ore**: The fundamentals are neutral, with price support from steel mill replenishment demand and pressure from high supply [35][36]. - **Coking Coal & Coke**: The future trend depends on factors such as the resumption of domestic mines and the production of iron and steel enterprises [37][38]. - **Silicon Iron & Silicon Manganese**: They are expected to be volatile and strong in the short term, but the upward space is limited [39][40]. Energy and Chemicals - **Pulp - Offset Paper**: The pulp market is neutral, and the offset paper market has a slight increase in valuation. Attention should be paid to downstream demand [42][44]. - **Crude Oil**: The core contradiction is the game between short - term geopolitical risk premiums and weak fundamentals, and it is in a low - level shock [45]. - **LPG**: The near - term is supported, and the future is under pressure. Attention should be paid to marginal changes [46][47]. - **PTA - PX**: There is a situation of strong expectation and weak reality. PX has a good supply - demand pattern, but there is a risk of callback [48][51]. - **MEG - Bottle Chips**: The demand side is weak, and the valuation is under pressure. The market is expected to be affected by macro - narratives [53][54]. - **Methanol**: It is recommended to buy at a low level [55][56]. - **PP**: It is expected to be in a shock pattern, and the focus is on the scale of device maintenance in January [58][59]. - **PE**: It is expected to be in a bottom - shock pattern, and the upward space is limited [61][62]. - **Pure Benzene - Styrene**: They have rebounded at a low level, but it is not recommended to chase high prices [63][64]. - **Fuel Oil**: High - sulfur fuel oil has a weak cracking situation, and low - sulfur fuel oil has limited cracking drive. Both are recommended to wait and see [65][67]. - **Rubber**: It is expected to be in a wide - range shock pattern, and different rubber varieties have different trading strategies [68][70]. - **Urea**: It is recommended to try to buy the far - month contract [71][72]. - **Soda Ash & Caustic Soda & Glass**: Soda ash has an oversupply expectation; glass has high inventory and low - season pressure; caustic soda is in a weak state and is expected to be in a wide - range shock [73][74][76]. - **Log**: It can be considered to use an option double - selling strategy [78][79]. - **Propylene**: It is necessary to pay attention to marginal changes, and the price is expected to be in a low - level shock [80][81]. Agricultural Products - **Live Pigs**: The supply and demand in the peak season need to be verified. The short - term is based on fundamentals, and the long - term can be bullish [82]. - **Oilseeds**: The short - term is affected by weak reality, but there are opportunities for phased rebounds [83][84]. - **Oils**: They are expected to be in a wide - range shock in the short term, and palm oil is relatively strong [86]. - **Cotton**: There is a risk of short - term callback, but there is upward space in the long term. Attention should be paid to downstream orders and policy changes [87][88]. - **Sugar**: There is pressure for the price to rise further in the short term [89]. - **Eggs**: The long - term egg - laying hen capacity is excessive, and short - term trading should be cautious [90]. - **Apples**: There is pressure on the disk due to the slowdown in consumption, and there are opportunities to build long positions after a pullback [91][92]. - **Red Dates**: They are expected to be in a low - level shock in the short term, and the long - term price is under pressure [93].

Group 1: Report Industry Investment Rating - Not provided Group 2: Core Viewpoints of the Report - The RMB showed a significant strong performance against the US dollar at the end of 2025, with the offshore RMB exchange rate breaking through the key psychological level of 7.00, indicating a re - emergence of strong appreciation momentum [2]. - The appreciation of the RMB at the end of 2025 is driven by the resonance of internal and external factors, including the weakening of the US dollar index, the narrowing of the Sino - US interest rate spread, and the concentrated release of seasonal year - end settlement demand [5][6]. - Although there are expectations for the RMB to appreciate and break through 7 and enter the 6 range in 2026, there are also potential risks such as geopolitical black - swan events, the domestic economic recovery falling short of expectations, and central bank foreign exchange policy adjustments [13]. Group 3: Summary by Relevant Catalogs I. RMB's Strong Year - End Performance: Symbolic "Breaking 7" and Its Market Characteristics - **Offshore RMB "Breaking 7": The First Time Since September 2024** - At the end of 2025, the offshore RMB exchange rate broke through 7.00 during intraday trading on December 25, the first time since September 2024, attracting high market attention and indicating enhanced market confidence in the RMB [2]. - **Market Volatility Characteristics: Strong but Low - Volatility, Contrasting with the September 2024 Market** - The implied volatility of the RMB is at a historically low level, indicating a more rational and orderly appreciation process and providing a stable foreign - exchange environment for enterprises and investors [2]. - The RMB's strong performance at the end of 2025 is fundamentally different from the 2024 market fluctuations. The latter was driven by the global yen carry - trade unwind, while the former is based on the resonance of internal and external supply - demand factors [2][5]. II. Driving Forces for RMB Appreciation: Resonance of Internal and External Factors - **External Factors: Weakening US Dollar Index and Narrowing Sino - US Interest Rate Spread** - The Fed's interest - rate cuts led to the downward trend of the US dollar index, narrowing the Sino - US interest rate spread and providing an external environment for the RMB's appreciation [6]. - The seasonal contraction of market liquidity during the Christmas holiday exacerbated the weakness of the US dollar, contributing to the year - end situation of a weak US dollar and a strong RMB [6]. - The market is generally pessimistic about the US dollar's trend in 2026, and the divergence in the Fed's expected interest - rate cuts, the change of the Fed chairman, and the "de - dollarization" trend all add uncertainty to the long - term prospects of the US dollar [7]. - **Internal Factors: Concentrated Release of Seasonal Year - End Settlement Demand** - The concentrated settlement of foreign - trade enterprises at the end of the year is a more direct and strong driving force for the RMB's appreciation, as evidenced by the fact that the RMB's appreciation amplitude is greater than the US dollar index's depreciation amplitude [8]. - China has maintained a trade surplus for seven consecutive months, and there is still a large amount of pending settlement funds being digested, which supports the RMB's appreciation [8]. III. A Cold - Blooded Reflection under the Market's Optimistic Expectations: Appreciation Space and Potential Risks - **Appreciation Space** - Huang Qifan's view that the RMB will appreciate to 6.0 in the next ten years is based on rational deductions of China's economic fundamentals, trade - structure optimization, and RMB internationalization [9]. - The RMB's actual effective exchange rate shows significant appreciation potential, as the gap between the nominal and real effective exchange rates indicates that the RMB's real purchasing power is undervalued [10]. - The narrowing Sino - US interest rate spread, the central bank's monetary - policy stance, and the increasing attractiveness of the A - share market are all factors that support the RMB's appreciation [11][12]. - **Potential Risks** - Geopolitical black - swan events, the domestic economic recovery falling short of expectations, and central bank foreign - exchange policy adjustments are potential risks for the RMB's appreciation [13].

Group 1: Global Narrative Shifts - The "narrative inflection points" driving global capital reallocation include changes in overseas economies, AI advancements reshaping US-China dynamics, and a decrease in China's economic tail risks[4]. - The narrative power is expected to persist into 2026, with global monetary policies remaining accommodative and fiscal expansion opportunities greater in non-US countries than in the US[4]. - The "narrative inflection points" encompass three layers: the end of the "American exceptionalism," Europe's awakening, and the decline of tail risks in the Chinese economy[4]. Group 2: Economic Rebalancing in China - The main theme for China's macroeconomic strategy in 2026 is transitioning from capital reallocation to economic rebalancing, as outlined in the "14th Five-Year Plan" draft[4]. - Key shifts in ideology during the "14th Five-Year" period include prioritizing demand-side policies over supply-side policies, emphasizing consumption over investment, and focusing on "investment in people" alongside "investment in goods"[4]. - Fiscal policy is expected to enter a "rigid expansion" phase, maintaining a budget deficit ratio of 4%, with slight increases in special government bonds and local government bonds[4]. Group 3: Economic Growth Projections - The GDP target for 2026 is projected to remain around 5%, with an expected actual completion of 4.9%, indicating a flat "U-shaped" growth trajectory[4]. - Consumer subsidy policies are anticipated to increase by 100-200 billion yuan on top of the 300 billion yuan allocated in 2025 to support service consumption[4]. - The Consumer Price Index (CPI) is expected to rise moderately to 0.4%, while the Producer Price Index (PPI) is projected to decline by 0.9%[4]. Group 4: Industry Opportunities and Risks - From a macro perspective, technology remains a primary investment focus, but consumer investment value is also expected to emerge[5]. - Potential risks for 2026 include the ongoing US-China relationship dynamics, uncertainties in the European economy, and pressures in the domestic real estate market[5].

Core Insights - The article discusses the relationship between labor productivity, the Balassa-Samuelson effect, and exchange rates, using real GDP per capita as a measure of labor productivity to assess currency valuation and future exchange rate trends [1][2][3]. Group 1: Balassa-Samuelson Effect and Real Effective Exchange Rates - The Balassa-Samuelson effect indicates that "lagging" economies experience a continuous appreciation of their real effective exchange rates as they catch up to "developed" economies [1][3]. - From 2005 to 2015, the real effective exchange rate of the Chinese yuan appreciated, supporting the notion of the Balassa-Samuelson effect, with predictions of further appreciation in 2025 and 2026 based on OECD forecasts [1][4]. - A comparison of 15 economies' labor productivity data for 2024 reveals that the Indonesian rupiah, Swiss franc, and South African rand are overvalued by over 20%, while the Korean won, Japanese yen, and Canadian dollar are undervalued by over 20% [6][9]. Group 2: Future Exchange Rate Predictions - The analysis predicts that in the next year, the US dollar will appreciate slightly against the euro and pound, weaken against the yuan initially, and then strengthen, while it will weaken against the yen, Australian dollar, Canadian dollar, New Zealand dollar, and Korean won [2][10]. - The euro and pound are expected to weaken moderately against the yuan, while the yen, Korean won, Australian dollar, Canadian dollar, and New Zealand dollar may rebound against the yuan after short-term pressure [2][23]. - The analysis suggests that the yuan is slightly overvalued by 3.45% relative to labor productivity, indicating that the appreciation of the yuan in 2025 and 2026 may be limited [6][9]. Group 3: Labor Productivity and Currency Valuation - The article emphasizes that the Balassa-Samuelson effect provides a theoretical framework linking labor productivity to real exchange rates, which is crucial for medium to long-term exchange rate assessments [4][10]. - The analysis of labor productivity and actual effective exchange rates shows that the yuan's valuation is close to equilibrium, with slight overvaluation, while other currencies like the Canadian dollar and Japanese yen show significant undervaluation [6][9]. - The relationship between labor productivity and bilateral exchange rates indicates that the yuan may face appreciation pressures in the coming years, particularly against currencies like the euro and pound [23][24].

Summary of Key Points from Conference Call Records Industry Overview - The focus is on the service consumption sector in China, particularly in comparison to developed countries like the US, Japan, and South Korea. The current service consumption in China is relatively low, even when GDP per capita reaches approximately $13,000, indicating significant room for growth in service consumption [1][2][11]. Core Insights and Arguments - **Drivers of Service Consumption Growth**: - Three main drivers identified: urbanization, aging population, and increased government spending on social welfare as GDP per capita exceeds $10,000, known as the Wagner's Law effect [1][4][17]. - Urbanization leads to increased demand for urban public services and lifestyle services [4][12]. - The aging population significantly boosts demand for healthcare and elderly care services [14][17]. - Government investment in social welfare is expected to rise, enhancing consumer spending [15][17]. - **Technological Gaps**: - There exists a technological gap between China and the US in productive services, particularly in information technology and software transmission. China needs to enhance its capabilities in these areas to close the gap and improve productivity, which in turn can lead to wage growth and service sector development [5][19]. - **Employment and Quality of Jobs**: - The rapid urbanization has not been matched by a corresponding increase in high-quality jobs in the service sector, leading to a situation where many workers are forced into low-quality service jobs, exacerbating the issue of "involution" in the service industry [6][7][24]. - **Price Dynamics**: - Service price growth in China has been lower than that of goods, indicating a broader low-price issue that extends beyond manufacturing to the service sector. This necessitates a focus on improving the quality of service supply to stimulate consumer willingness to pay [3][8][9]. - **Comparison with the US**: - The US has seen a significant increase in service sector contribution to GDP, reaching 76% by 2009, while China remains at a lower stage of development. The US has a more integrated productive service sector that supports various industries, while China's service sector is still developing [16][22]. Additional Important Insights - **Future Focus Areas**: - Over the next five years, China is expected to prioritize the development of both productive and lifestyle services, with an emphasis on technological advancements and improved income distribution mechanisms to enhance wages in the service sector [24][25]. - **Potential Growth Areas**: - Specific sectors identified for future growth include information technology, scientific research, wholesale and retail, and health and social work, which show strong demand elasticity with rising income levels [25][26]. - **Challenges in Service Sector**: - The service sector faces challenges such as insufficient high-quality job creation and the need for better integration of productive services with manufacturing to enhance overall economic growth [6][27]. This summary encapsulates the key points discussed in the conference call, highlighting the current state and future potential of the service consumption sector in China, along with the challenges it faces in comparison to developed economies.

Core Viewpoint - The article discusses the transformation of macroeconomic analysis frameworks, highlighting the revaluation of global assets, the migration of wealth allocation, and the rebalancing of great power competition in the current economic landscape [5]. Group 1: New Macro Analysis Framework - The article introduces a "New Macro" framework that signifies a significant change in the analysis of macroeconomic conditions [5]. - It emphasizes the importance of understanding the new clues related to global asset revaluation [5]. Group 2: Wealth Allocation Migration - The article outlines a "New Era" characterized by a major shift in wealth allocation strategies [5]. - It discusses how low interest rates influence asset allocation decisions among residents and financial institutions [5]. Group 3: Rebalancing of Great Power Competition - The article presents a "New Stage" focusing on the rebalancing of great power competition, particularly in the context of U.S.-China relations [5]. - It highlights the implications of U.S. fiscal policies, such as tax cuts and tariffs, on global economic dynamics [5].

Core Viewpoint - The recent appreciation of the Renminbi (RMB) against the US dollar is attributed to systemic changes in the international monetary system and increasing risks associated with the US dollar, indicating a potential long-term upward trend for the RMB [2][3][4]. Group 1: RMB Exchange Rate Trends - The onshore RMB to USD exchange rate has been on an upward trend since early April, recovering from a low of 7.3498 on April 9 to surpass the 7.2 mark in May [2]. - As of May 26, the offshore RMB reached a high of 7.1833, marking the highest level since November 8, 2024, with a 1.01% increase in May and a 1.48% increase year-to-date [2][3]. - Experts suggest that the RMB's recent performance reflects a return to its long-term theoretical trend due to short-term factors like increased dollar risks [3][4]. Group 2: Influencing Factors - The decline of the US dollar index, which fell from a peak of 103.3376 on April 9 to 97.923 on April 21, is a significant factor influencing the RMB's appreciation [3]. - The US Federal Reserve's acknowledgment of potential economic challenges, including rising inflation and unemployment, contributes to the weakening of the dollar [3]. - Recent monetary policy measures by the People's Bank of China, including interest rate cuts and liquidity support, have bolstered the domestic economy's resilience against external shocks, providing internal support for the RMB [4]. Group 3: Long-term Outlook - Experts believe that the RMB should theoretically be on an upward trajectory due to China's economic growth, which typically leads to an increase in national income levels and currency appreciation [3][4]. - The overall balance of international payments in China is expected to remain stable, further supporting the RMB's position in the foreign exchange market [4].