What China needs to do to make the yuan more international – Shirley Yu

 

Shirley Yu

China’s currency, the yuan, still has a long way to go on its road to become an international currency, says political economist Shirley Ze Yu at the S&P Global. The need for China to internationalize its currency “is both strategic and opportune,” Yu said.

The S&P Global:

“The BRI (Belt&Road Initiative) region is China’s natural region to succeed in building a multilateral currency order, to rival the 20th-century U.S.-dominated global monetary system,” said Shirley Ze Yu, a political economist and a fellow at Harvard Kennedy School’s Ash Center.

To be sure, China needs to allow the yuan to float more freely. The digital yuan won’t be “a standalone entity,” Yu said, adding, the digital yuan cannot become a global center currency, unless the yuan “itself becomes one.”

The depth and width of the capital market is still the most significant variable, because no country or individuals would hold on to a yuan-denominated asset if there is insufficient market liquidity globally. The yuan “has a long road to travel still,” she said.

Yu said that it is crucial for China to internationalize the yuan now, especially since the U.S. dollar has enjoyed its reign as “the ultimate currency of last resort” post-World War II and dominates the global monetary system. The need for China to press the gas pedal on its yuan internationalization agenda also became more pronounced recently as the U.S. announced sanctions against Chinese and Hong Kong officials. China has to be prepared for its banks to be excluded from international monetary clearing systems, including SWIFT and CHIPS systems, down the line, she said.

The need for China to internationalize its currency “is both strategic and opportune,” Yu said. “In the current decade, we might inevitably see two parallel global monetary systems” — the dollar-based system and a rising and regional yuan-based system.

More at the S&P Global.

Shirley Ze Yu is a speaker at the China Speakers Bureau. Do you need her at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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Drop of yuan caused by US tariffs - Jim Rogers

Jim Rogers

China's currency, the yuan, is on a downward track, not because of government action, but is a market reaction on the US tariffs on Chinese goods, says investment guru Jim Rogers. Washington has to blame itself for the weakening yuan, he tells in the Stocknewsbrief.com.

The Stocknewsbrief:

“If you put billions of dollars (in Chinese goods) under tariffs, don’t you think it would affect the currency?” Rogers told RT. He added that while the People’s Bank of China actually can have a hand in changing the renminbi exchange rate, the recent course of events is explained by basic economic rules. “Anybody who knows any basic economics knows that if you hit a huge economy with lots of tariffs it’s gonna have [an] effect on the currency… It’s the way the market works.” 

The weaker yuan can actually help Beijing to offset the impact of Washington’s tariffs on China’s exports. As its national currency declines, Chinese goods become cheaper to sell abroad. So, the US fears that it would not be able to sell its own goods while there are plenty of cheaper Chinese products on the market thanks to a weaker yuan. “It makes American goods more expensive and therefore more difficult for America to sell goods in the world market,” Rogers explained. 

However, the falling yuan has a downside, according to Rogers, such as an increase in the cost of living and production as everything China imports becomes more expensive.

More in the Stocknewsbrief.com.

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Devaluation yuan pondered amid trade war exchanges - Victor Shih

Victor Shih

China's financial institutions ponder on the pros and cons of a currency devaluation as the effects of the trade war with the US start to kick in. While devaluation is on the agenda, it would be a tricky road, says financial analyst Victor Shih, author of Factions and Finance in China: Elite Conflict and Inflation, at CapitalWatch.

CapitalWatch:

Meanwhile, the famed trade surplus the export powerhouse ran with the rest of the world has been shrinking. 

Victor Shih, an associate professor of political economy at the University of California, San Diego, says currency devaluation could be an attractive option for China to offset the impact of the trade war. But he warned the tactic had limits, as it "could create a panic on the renminbi which becomes difficult to control."... 

U.S. President Donald Trump has announced tariffs on about half of China's roughly $500 billion of annual exports to the United States in a tit-for-tat trade war, and has threatened to broaden those penalties. 

Analysts say the trade spat could lead to heavier pressure on the yuan if China's trade surplus shrinks and gloomy economic prospects deter multinational investments in the country. 

Shih estimates that even a modest 20 percent reduction in exports to the United States could cause the monthly trade surplus to drop by $8 billion to $10 billion, nearly a third of the average. In addition, a reduction in foreign direct investment, which brought $136 billion into China last year, would also reduce forex inflows substantially, he added... 

The most recent data from the State Administration of Foreign Exchange (SAFE) shows that China had total foreign liabilities of $5.3 trillion at the end of the second quarter, of which $1.13 trillion was portfolio investments - equity and debt securities that foreign investors could attempt to offload in the event of market panic. 

Broader SAFE data showed China's total external debt, excluding Hong Kong and Macau, at $1.84 trillion at the end of the first quarter, an increase of $455 billion from the end of 2016. 

Although not all of those exposures are at risk of fleeing China's shores, analysts say they put the size of China's $3 trillion in foreign exchange reserves into perspective. Shih said existing capital controls were very stringent. 

"Even the billionaire class faces tight restrictions in terms of where they can invest money," he said. "However, there are still ways, and it is likely that corruption is returning, which will undermine Chinese capital control measures."

More at CapitalWatch. 

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Conservative resistance against liberalization of the yuan - Victor Shih

Victor Shih

Retiring central banker Zhou Xiaochuan called this week for the liberalization of China's currency, the Yuan. But conservative forces might find this step from the People's Bank of China (PBOC) a step too far, says financial expert Victor Shih to Bloomberg.

Bloomberg:

While it’s widely expected that Zhou will retire, there are no guarantees as China’s political appointments are often unpredictable. The PBOC chief bucked expectations he would leave back when he was 65. Instead he was promoted, taking on the title of vice chairman of the Chinese People’s Political Consultative Conference, where the retirement age typically is 70. Zhou turns 70 in January. 

“It seems there is a concerted push from within the PBOC to liberalize the capital account and exchange rate a bit while the yuan is relatively strong,” said Victor Shih, a professor at the University of California in San Diego who studies China’s politics and finance. “The conservative views of the higher leadership may stand in the way of significant progress.”

More in Bloomberg.

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China stops manipulating its currency and gets the flak from Washington - Sara Hsu

Sara Hsu

Financial analyst Sara Hsu strongly disagrees with former US ambassador to the UN John Bolt as he accuses China it manipulated its currency by the recent devaluation. China is just doing what politicians in Washington have asked them to do, Hsu argues in PressTV "They wanted China to become more market oriented."

PressTV:

“I would strongly disagree with what former US ambassador John Bolton has said and I would fall in line with what China is stating in terms of the motivation for its devaluation,” said Hsu, who is also a research director at the Asia Financial Risk Think Tank. 

“If they [China] were attempting to devalue their currency in order to boost exports, they would have had to devalue that by even more because the little that they did, devalue the currency, it doesn’t quite make sense in terms of promoting exports,” she added. 

“This also flies in the face of their attempts to structurally reform and move away from an export-led and manufacturing-led economy to a more service-based economy,” the academic noted.

More in PressTV.

Sara Hsu is a speaker at the China Speaker Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´request form.

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There is no good time for a devaluation - Arthur Kroeber

Arthur Kroeber

Dust might have settled down on the recent surprise devaluation of the Yuan by the time President Xi Jinping will meet his counterpart in the US, says financial analyst Arthur Kroeber in Bloomberg. Relations with the IMF have been defining the moment for this long-expected move.
Bloomberg:

China has been seeking reserve status as part of a campaign to play a larger role in the postwar global economic order designed and dominated by the U.S. Membership of the reserve-currency club would be a crowning achievement after three decades of breakneck growth that saw the Chinese economy take its place as the world’s second-largest after the U.S. 

The devaluation may ensure there’s enough time for the emotions to ebb before the Xi-Obama summit, said Arthur Kroeber, Beijing-based managing director at GaveKal Dragonomics, an independent global economic research firm. 

“There is no good time to do these things; moreover, it seems clear in retrospect the PBOC did not anticipate the very negative market reaction,” he said. “Waiting until after the summit would have been far too late to build credibility with the IMF.”

More in Bloomberg.

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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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.

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The official reason for the devaluation is correct - Sara Hsu

Sara Hsu

There are two schools of thought on China´s recent devaluation of the Yuan. A group of analysts, like Victor Shih and Tom Doctoroff, believes the central government is in panic and tries to jump-start economic growth. Others like Arthur Kroeber and Nicholas Lardy join the official explanation, telling us the move is market-driven, and good for its international standing. Financial analyst Sara Hsu joins the last group, in the Diplomat.

Sara Hsu:

China devalued its currency on Tuesday, reportedly in order to make the RMB more responsive to market forces, although this gave rise to suspicion among global analysts, who fear that the devaluation is a sign of a deteriorating balance of payments. The RMB fell 1.9 percent against the dollar, the largest one-day decline in a decade. Worse, the following day, the RMB was weakened by 1.6 percent from the previous day’s midpoint. Asia Pacific stock markets and emerging market currencies declined as a result, on speculation that the change was made in order to prop up China’s slumping economy. Yet despite the negative market response, the official line still makes the most sense. 

The response among international analysts included projections that China was manipulating its exchange rate in order to boost exports, which have lagged for several months given lower levels of growth. Some analysts viewed the devaluation as part of a devaluation trend taking place in the rest of Asia. Pundits speculated that the devaluations would strongly and adversely impact luxury goods and tourism, as well as commodity imports. As a result of the latter, Brent crude prices fell on the news of the devaluation. Overall, the sentiment was risk-retreating as many analysts believed that Chinese technocrats were covering up economic data that was worse than has been reported. A somewhat more neutral interpretation of China’s move includes the belief that China is attempting to delink from the dollar, as the anticipated end of quantitative easing in the U.S. has meant a stronger dollar and consequently a stronger RMB. The move is therefore seen as both corrective in terms of bringing some competitiveness back to the RMB and preemptive since the dollar will continue to strengthen. 

The most positive interpretation is provided by the official line. According to a central bank spokesman, China’s real effective exchange rate was relatively high and not in line with market expectations, so that the shift in central parity better reflects the market rate. The RMB’s central parity is now based on market makers’ quotes and the previous day’s closing price. This was supposedly a one-time correction and will not continue over an extended period of time. The move is attributed to China’s ongoing process of exchange rate liberalization. 

The stated reason for the exchange rate devaluation makes the most sense. In support of the official line is the fact that an RMB devaluation of less than 2 percent will not do a great deal for either exports or imports. The devaluation is unlikely to strongly impact China’s growth, which would require a far larger devaluation and a reversal of structural reforms to truly boost exports. 

The devaluation was applauded by the IMF, which took the official statement, supporting increased liberalization of the exchange rate, at face value. Therefore, while the short-run impact was to adversely impact regional financial markets, the long-run result may be the long-awaited liberalization of the RMB. Still, even though the central bank would like to converge the state-managed onshore and market-based offshore RMB rates, ironically the offshore rate took a dive on Tuesday, widening the gap between the onshore and offshore rates to its greatest level since September 2014. This only underscores the fact that markets act according to their own whims, something Beijing will have to face as the exchange rate liberalization process moves further down the road.

More in the Diplomat.

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

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The timing of the devaluation was wrong - Arthur Kroeber

Arthur Kroeber

The devaluation of the yuan was right, argues economist Arthur Kroeber, according to the Washington Post. But the timing was most unfortunately, leading to the - wrong - conclusion the central government was taking panic measures.

The Washington Post:

Arthur Kroeber, managing director at Gavekal Dragonomics, said this week’s move to a market-driven exchange rate would be good for China and the world in the long term, supporting the government’s efforts to reform its economy and its intention to give markets a “decisive role” in allocating resources. 

But the timing is problematic, he wrote in a note on Wednesday. 

“The currency is being let off the leash right at the moment when market sentiment on China is pessimistic because of a continuing economic slowdown, an increase in private capital outflows, and entrenched producer price deflation,” he wrote. “Market confidence was also shaken by the authorities’ clumsy intervention to prop up the stock market after the popping of the equity bubble in June.” 

“In this context it is no surprise that many traders and analysts have interpreted the currency move — wrongly, in our view — as a last throw of the dice by a government panicking about an economy in free-fall.”

More in the Washington Post.

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 devaluation is market-driven – Ben Cavender

Ben Cavender

Some see the devaluation of the yuan as a panic measure by the Chinese government to reignite growth, but market analyst Ben Cavender tells the Guardian why the depreciation is mainly market driven, making the yuan freer from the US dollar peg.

Ben Cavender 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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