Some misunderstandings at China´s financial markets - Shaun Rein

Shaun Rein

Panic and fear rule China´s stock markets, says business analyst Shaun Rein at Money Control, but it is mainly small retailers who rule the current market, others have safely left. And for the Yuan: that was already overvalued for a long time, he says.

Money Control:

A: I think the market still is being driven by fear and rumour. Everyday retail investors are starting to trade based on what the guy next of them is doing or what they think that the government is going to do. What is key is that a lot of the wealthier investors have exited the market in the last three or four weeks and so a lot of the times right now, it is the everyday retail investors who are in their well mid-income level that have kept their cash in. So, when you see the market volatility, it is going to just get more because a lot of these guys are going to go in and out. 

Sonia: You are saying it is the institutional investors, the high networth individuals (HNIs) that have exited the Chinese market and not the retail investors yet? 

A: The high networth individuals, people where 10 million rmb which is about USD 1.8 million in assets invested in the market, when we interviewed them, a large portion of them had sold everything or sold large portions of their stock three or four weeks ago once the government intervened. That was their way to sort of take their wins over the last year without losing any more because it tended to be more the smaller players who started investing in April-May and they actually didn’t make as much money as the guys who are richer who probably were invested over year ago. 

Latha: What is the view on the currency, left to itself, might it fall very sharply unless the PBOC intervened in favour of the currency? 

A: I have always been arguing for many years now that the renminbi is actually overvalued and actually there could be depreciation if you are going to go to a free convertability and unpeg everything. The real reason is that a lot of Chinese want to be able to take their money offshore. They want to be able to invest in India or invest in the United States and they can’t right now because of the currency restriction. 

So, I think the renminbi is overvalued about 6-10 percent. I don’t expect it to go up like this, drop like that and then next few months the government is going to intervene. They want to sort of have more of a stabilised rate but I don’t think that they were devaluing the currency to boost up the exports, I think it was partially that but I think a bigger part which moved towards more market reforms because they really want the rmb to become a reserve currency. If you see the International Monetary Fund (IMF) and a lot of the other governmental, non-governmental type organisations approved and applauded what China did with its currency last week. However, I don’t see a major slide any time soon.

More at Money Control.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Yuan devaluation is not a currency war - Arthur Kroeber

Arthur Kroeber

US media have been up in arms after China started to devaluate its Yuan, accusing it of starting a currency war with the US dollar. Nonsense, argues economic expert Arthur Kroeber in the Business Standard. China has long been blamed for manipulating its currency, a practice it is going the abolish, although it might not make everybody happy in the short run.

Arthur Kroeber:

My suspicion is that in a few months' time all these anxieties will prove to have been overblown. First, the moves in the renminbi so far are significant in terms of the currency's own past history, but are pretty modest by the standards of currency markets in general - especially given that over the previous year the renminbi had appreciated in real effective terms by more than 10 per cent because it was chained to an ultra-strong dollar. The forward market has been pricing the renminbi at around CNY6.5 to the US dollar, which seems roughly fair value, and a devaluation much beyond that, to CNY6.6 or CNY6.7, is likely to draw buyers with a longer time horizon back into the market. Most likely the Fed sees all this, and will not use China as an excuse to delay its rates hike. 

Second, by timing this move now the PBOC has done its best to ensure that the renminbi's gyrations will be finished by the time Xi goes to the US in September for his summit with Obama, and certainly by the time the IMF board meets in November. If the PBOC continues to follow through on its pledge to let the market have the main say in the daily fixing, it will quickly become much harder for the likes of Schumer to credibly argue that China's currency policy is a mercantilist conspiracy. 

The key thing now is for the PBOC to establish its credibility as the steward of a market-driven exchange rate, and as the vanguard of China's much needed financial liberalisation. After the stock market rescue (in which the PBOC appears to have been a most unwilling participant), confidence in the trajectory of China's economic reforms has suffered severe damage. A show by the central bank that it is willing to let the market guide the exchange rate, and that it will stay this new course even if the short-term consequences are inconvenient for the politicians, would be a sign of maturity and strength. Good luck to it.

More in the Business Standard.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

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Yuan: trying to become a global reserve currency - Victor Shih

Victor Shih

One of the reasons for China to drop the value of its currency was to get into line with the IMF requirements to become a global reserve currency. Much of the country´s actions is about prestige, says associate professor Victor Shih at WFDD.

WFDD.

JIM ZARROLI, BYLINE: China is already an economic force, the second-biggest in the world. It's a powerhouse in trade and manufacturing. But it yearns to be more. 

VICTOR SHIH: For the top leadership especially, a main motivation is prestige. 

ZARROLI: Victor Shih is an associate professor of political science at the University of California at San Diego. Shih says China wants to be respected in the global financial markets like the United States, Japan and England are. That was behind its efforts earlier this year to set up the so-called Asian Development Bank, which lends money for infrastructure projects. And Shih says China's decision to let its currency fluctuate a bit more freely this week is another part of its effort to become a financial player. 

SHIH: President Xi Jinping has said repeatedly that China is now a major country, on equal footing with the United States. Part of that is to have China's currency to be a globally accepted reserve currency.

More at WFDD.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you looking for more political experts at the China Speakers Bureau? Do check out this list.  

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Why the devaluation of the yuan is a good idea - Arthur Kroeber

Arthur Kroeber

Many analysts tumbled over each other to dismiss China´s record devaluation of its currency. But financial analyst Arthur Kroeber disagrees, and says it is a necessary move to financial reforms in the middle and long term, CityWire writes.

CityWire:

Although the moves to devalue the renminbi could spark fresh concerns about competitive currency wars, GaveKal economist Arthur Kroeber is sanguine about the move. 

'Ignore silly headlines about “currency wars”. We hold firm to the view that the currency move has nothing to do with cyclical economic management and everything to do with creating a more flexible exchange rate mechanism that will enable the renminbi’s admission into the IMF’s special drawing rights basket. 'A more flexible exchange rate is also a necessary step to push ahead the market-oriented reform agenda outlined by president Xi Jinping nearly two years ago—an agenda that in recent months has seemed in danger of stalling.' 

He added: 'In the medium to long term, it will be good for both China and the world for the renminbi to trade more freely. China accounts for 18% of global manufacturing exports, vies with the US for leadership in outbound direct investment, and is an increasingly important source of portfolio capital. Under these conditions it is senseless for China to cling to a currency whose value is determined by government fiat. 

'From a domestic point of view, the exchange rate is one of the very few remaining controlled prices in the world’s second-largest economy. If the government is really serious about giving market forces “a decisive role” in resource allocation, as it pledged in its November 2013 reform roadmap, then the exchange rate has to be freed up.'

More in CityWire.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.  

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Why the devaluation of the yuan was a bad idea - Tom Doctoroff

Tom Doctoroff

If the 2% depreciation of China´s currency has shown anything, it shows its leaders are nervous and loss face, writes author Tom Doctoroff in the Huffington Post. Can China's growth model be reinvigorated, Doctoroff wonders. Yes, but not by using outdated control mechanisms.

Tom Doctoroff:

The legitimacy of Xi Jinping's regime has rests on two planks. First, his anti-corruption campaign, despite widespread assumptions it masks score settling, has stirred hearts by reinforcing the President's man-of-the-people appeal. The drive has also whetted expectations that his consolidation of power will provide the political capital necessary to carry out sensitive reform. 

Few deny the need to re-engineer China's economic model. The importance of (increasingly inefficient) capital investment and exports buttressed by (increasingly scarce) cheap labor must decline relative to the contribution of consumer spending and the service sector. The reversion to an old economic playbook -- that is, a cheaper currency to the manufacturing sector -- represents a loss of national face. It is a bitter pill to swallow, one I suspect has been resisted for some time. The central government, eager to be perceived as standing tall on the world stage, is ultra-sensitive to any dilution of global stature. Mr. Xi's "China Dream" is rooted in prideful regional dominance. On both personal and national levels, the primacy of face, the fuel of forward advancement, is fundamental. It is sacrificed only as a last resort. 

The depreciation smacks of fear for another reason. The Chinese cherish stability. It is a "platform" on which progress is constructed. Heretofore, the long game of economic reform has been deliberate but it has also been meticulously incremental. 

But the Great Leap Forward, a crackpot economic strategy to industrialize the countryside, and the Cultural Revolution, ten years of destructive chaos, reveal another facet of China's psyche: the potential for anxiety to trigger impulsive decisions. 

The tone deaf brusqueness of the currency intervention is inconsistent with the regime's cautious "lay low" approach to international engagement. It has destabilized currency markets and raised bold question marks on China's ultimate intentions. Leadership must now bend over backwards to reassure trading partners about its commitment to market-driven reform. If not, China's image as a "responsible stakeholder" in global institutions, so crucial to nation's rise, will suffer a blow. 

Can China's growth model be reinvigorated? Yes. The digital revolution has broadened horizons. According to the National Business Daily, more than 10,000 enterprises are founded every day and the majority are Internet companies -- a burst of creative entrepreneurialism and democratized market opportunity ripe for the picking. And China's leadership is increasingly branché, sensitive as never before to the realities of globalism. But to reach the next level of prosperity, Beijing's mandarins will need to resist a basic instinct to control, well, everything. Yes, foreigners do not appreciate the exquisite delicacy of the central government's balancing act. But, still, the genie of China's economic dynamism is out of the bottle. And the PRC's upwardly ambitious middle class has achieved critical mass. The country's institutions need to evolve with the times, lest the Chinese people lose faith in a paternalistic government's ability to slowly but surely implement an economic agenda that delivers broad-based opportunity. Should that happen, Xi JinPing's Mandate of Heaven will evaporate and the world will be a much more uncertain place.

More in the Huffington Post.

Tom Doctoroff is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you looking for more political experts at the China Speakers Bureau? Do check out this list.  

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The US play a Renminbi blame game - Arthur Kroeber

Arthur Kroeber

The United States are using China's currency, the Renminbi, as a scapegoat to hide its economic problems are created by themselves, argues economic analyst Arthur Kroeber in The New York Times. China is using its currency as a development tool, as so many countries did in the past.

The New York Times:

Arthur Kroeber, managing director of GaveKal Dragonomics, a Beijing-based consultancy, said that when it came to the United States, in particular, “the renminbi is basically a proxy for frustration on two fronts.” 

First, he said, the “vast majority of economic problems in the U.S. are self-created, but that’s an unpleasant truth to recognize and we’d rather blame the Chinese.”... 

Mr. Kroeber agreed that the government’s currency policy mirrored development patterns in Japan, South Korea, Britain and even the United States. 

“My perception is that the currency is part of a development strategy and the Chinese have used that in the same way it’s been used before by other countries,” Mr. Kroeber said.

More in The New York Times 

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form. 

More links on Arthur Kroeber at Storify.

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Two different ways to look at a currency - Arthur Kroeber

Arthur Kroeber

The US and China are at loggerheads again over the way China deals with its currency. It does not help both China and the US have two fundamental different ways to look at their currency, says economic analyst Arthur Kroeber, quoted by the Japan Times.

The Japan Times:

In a carefully argued presentation for the Brookings Institution, Arthur Kroeber, who is based at Brookings Tsinghua center, acknowledged that pressure from the U.S., the International Monetary Fund and World Bank, along with Chinese domestic concerns, had led China to allow appreciation from 2005. But he suggested that there was a gulf in the ways of thinking of the currency issue between the West and Beijing. In the Western view, the exchange rate is merely a price, and therefore consistent intervention by China to set the exchange rate below the market rate is a distortion that prevents markets from functioning properly. It also distorts China's own economy by encouraging investment in exporting industry and discouraging investment in China's consumer market. 

Kroeber notes that China's perspective is different: "Chinese officials see the exchange rate — and prices and market mechanisms in general — as tools in a broader development strategy. The goal of this development strategy is not to create a market economy, but to make China a rich and powerful country. Chinese leaders observe that all countries that have raised themselves from poverty to wealth in the industrial era, without exception, have done so through export-led growth."

More in The Japan Times

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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Why the US needs China to manipulate its currency - Janet Carmosky

Because China has a trade deficit, it has to buy treasury bonds, Janet Carmosky explains in the next sequel of "China What?". Some American politicians want China to stop buying those bonds, but it is not in the interest of the US citizens when China stops doing that, says Carmosky.


Janet Carmosky is a speaker at the China Speakers Bureau. When you need her at your meeting or conference, do get in touch.

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No market forces for the Renminbi - Arthur Kroeber

Arthur Kroeber

While the US administration is falling short of calling China a "currency manipulator", US fear for the Chinese currency still prevail. In Foreign Policy economic analyst Arthur Kroeber argues why its financial authorities do not trust the markets to set its rates.

China's exchange-rate policy is mainly driven by the aim of enhancing the country's export competitiveness. But other factors play a role, namely a desire to maintain domestic and regional macroeconomic stability, keep inflationary pressures at bay, and force a gradual upgrading of the industrial structure. From Chinese policymakers' point of view, all these objectives suggest that the exchange rate should be carefully managed, rather than left to unpredictable market forces. While economists may argue that long-run economic stability is better served by a more flexible exchange rate, Chinese officials can point to the excellent track record their policies have produced: consistent GDP growth of around 10 percent a year since the late 1990s, inflation consistently at or below 5 percent, export growth of more than 20 percent a year, and a steady increase in the sophistication of Chinese exports. Until some kind of crisis convinces them that their economic policies require major adjustment, China's economic planners are likely to stick with their current formula...

[W]e can reasonably expect rapid growth in the Hong Kong RMB bond market. But the growth of that market, and granting foreigners access to the domestic Chinese government bond market, remain severely constrained by political considerations. Just as Chinese officials do not trust markets to set the exchange rate for their currency, they do not trust markets to set the interest rate at which the government can borrow. Over the last decade Beijing has retired virtually all its foreign borrowing; more than 95 percent of Chinese government debt is issued on the domestic market, where the principal buyers are state-owned banks that are essentially forced to accept whatever interest rate the government dictates. There is absolutely no reason to believe that the Chinese government will at any point in the near future surrender the privilege of setting the interest rate on its own borrowings to foreign bond traders over whom it has no control. As a result, it is likely to be many years before there is a large enough pool of internationally available safe RMB assets to make the RMB a substantial international reserve currency.

Much more arguments and facts in Foreign Policy. Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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One-off revaluation needed to fight inflation - Shaun Rein

The Chinese government should be revaluate its currency on one time to stop the price rises in the country, Shaun Rein explains in CNCB. In the past he argued against a too fast increase of the value of the renminbi, since that would hurt the export and the manufacturers. Now, to prevent social unrest, stiff action would be needed to stem inflation.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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The looming currency war - Andrew Leung

Image by Fantake via Flickr

A currency war is looming with the US threatening to impose punitive tariff mechanisms which may trigger a global trade war, writes Andrew Leung at his weblog. "However, China’s current resource-intensive manufactures are already trading at wafer-thin margins and any drastic RMB appreciation is likely to cause catastrophic job losses and social instability. "

For China, much more is at stake than economics. She preciously guards her independent exchange and monetary tools to grapple with the multi-faced challenges of social dynamics and geopolitics concomitant with the unchartered course of a rapidly developing, yet transitional economy, now the world’s second largest.  With rising social tensions, China is expected to change course during her coming 12 Five Year Plan (2011-15), ushering in a more moderate, higher-quality, more balanced and sustainable development model geared to much higher domestic consumption.

More at Andrew Leung's weblog.

Professor Andrew Leung is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

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American fear and anger towards China - Shaun Rein

Shaun Rein by Fantake via Flickr

Shaun Rein is shocked by the American fear and anger towards China, including the misplaced rethoric against China's currency, he reports in CNBC. "Many attribute China’s boom as a result of stealing American jobs and intellectual property, rather than efficient economic policies and hard work ethic."
Shaun Rein:

America needs to get more competitive at manufacturing to reduce our overall surplus, not blame China’s currency policies. Trade patterns are far more inelastic than many economists believe.
In fact, more than 70 percent of big American multinationals operating in China told my firm they did not want the renminbi to appreciate too much because it will cut into their profits. The majority also said they would increase costs to the American consumer or move to cheaper production areas if it rose.

More in CNBC, including Shaun Rein debate with American Secretary of Commerce Gary Locke.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch. 

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US companies oppose rise of the Renminbi - Shaun Rein

Shaun Rein by Fantake via Flickr

US congress and other political bigwigs might be pushing China to appreciate its currency, but Shaun Rein asked US companies, and they see their interests hurt by a rise of the Renminbi, he writes in Forbes:

The next time you hear someone in Congress push to appreciate the renminbi, ask them why they would want to make prices higher for everyday Americans at Wal-Mart and take away profits for American workers when they need it most. That endangers America's economy as well as China's.

Yes, you are reading this correctly: a rise of the Renminbi hurts US interests. Shaun Rein recalls a recent meeting with the president of one of his clients:

I asked him what he thought about Congress pushing for appreciation of China's currency, the renminbi, or yuan. His immediate answer: "It would be the worst thing for my company." (His company is 100% owned by Americans, by the way.) First, he said, an appreciating renminbi cuts into his company's profits, which lowers bonuses, salaries and dividends for employees in the U.S. Why would anyone want to lower the profits of American companies during a financial crisis?

Second, an appreciating renminbi also would not save American jobs, he argued: "That saving American jobs argument is ridiculous." Companies would "transfer production to lower-cost places like Vietnam or Indonesia.

More in Forbes, including observations on the threat of a trade war.

Commercial
Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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