[RC_ITR]

If you’re a government that sets a fixed exchange rate, one way you do that is by saying - for every dollar you give me, I will give you 6.5 RMB.

Since they’re the entity that makes the RMB, and a lot of people want to buy stuff from them in dollars, they collect a lot of dollars and print a lot of RMB.

The flip side of that is because they don’t have a big consumer economy, not as many people want to buy things in USD by converting their RMB (especially since the exchange rate is fixed at an unfavorable level).

So net net they have more dollars becoming RMB than vice versa. Those RMB become worth less anytime anyone exchanges them into another currency (because the fixed exchange rate), so they need to spend them in ways that don’t require an exchange.

Then domestic investors way over-invest in domestic projects, which leads to inefficient cities in the countryside.