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Showing posts with label Currency war. Show all posts
Showing posts with label Currency war. Show all posts

Tuesday 27 August 2019

Is Trump insane? Escalating trade tension woos equity bears to Asia

               
Ex-advisers worried about Trump's behavior, NYT reports https://youtu.be/FuKZ-qwNSU4

Trump Says He's Lost Billions Being President

https://youtu.be/EAO9eO1Nh1E

President Trump: I don't blame China, I blame past leadership

https://youtu.be/Dzvlysi7zOQ

Departure of U.S. companies from China will hurt U.S. economy

https://youtu.be/-ooTKeqwsbo

A Lot of Confusion in China on U.S. Motives, Says AmCham China’s Stratford

https://youtu.be/gysFIV8327w

Escalation of China-U.S. trade tension

https://youtu.be/3pCXrJtm1W4

Markets sink as Trump presses US companies to leave China

https://youtu.be/eutPdwk19Ac

Stocks fall amid fresh tensions in US-China trade war

https://youtu.be/sio9xZtR4gA

KUALA LUMPUR: Asian markets started the week on a weak note amid escalating trade war concerns after the US and China announced plans for additional tariffs against each other.

Locally, the FBM KLCI stayed in negative territory for the whole of yesterday, before paring losses to close 8.8 points or 0.55% lower at 1,600.53 points. Before the closing, the index hovered below 1,595, falling 1.17% to an intraday low of 1,590.51.

Despite the fall, the local index was among the least affected by the regional selldown, compared with other Asian indices. The biggest loser among the regional indices was Japan’s Nikkei 225, falling 2.17% to 20,261.04. This was followed by Hong Kong’s Hang Seng Index and the Taiwan Stock Exchange, down 1.91% and 1.74% respectively. India’s Sensex notably closed 2.16% higher.

In Southeast Asia, Singapore’s Straits Times Index was the biggest decliner, down 1.45% at 3,065.33, and the Jakarta Composite index closed 0.66% lower at 6,214.51.

Last Friday, US President Donald Trump announced an additional duty on some US$550 billion worth of targeted Chinese goods, following China’s move to hike trade levies on US$75 billion worth of US goods.

Trump said US tariffs on US$250 billion of Chinese imports will increase from 25% to 30% on Oct 1, while an additional 5% tax on US$300 billion worth of Chinese goods — raising the tariff to 15% from 10% — starts on Sept 1.

The president made it clear that the US was responding to China’s threat of additional tariffs on US$75 billion of goods including soybeans, automobiles and oil.

“This looks like a tit-for-tat [response] and I don’t see an easy resolution to the trade war, as there seems to be no middle ground between the US and China. It is very unsettling for the market because there is no direction from day to day,” said Inter-Pacific Securities Sdn Bhd research head Pong Teng Siew.

However, the tensions eased a bit towards the later part of yesterday, as Chinese Vice Premier Liu He said China was willing to resolve the trade dispute through calm negotiations, stating the nation was against the escalation of the conflict.

Trump responded positively to China’s suggestion and, on the sidelines of a summit in France, had hailed Chinese President Xi Jinping as a great leader and welcomed the latter’s desire for calm negotiations.

It remains to be seen how the trade dispute will be resolved, given the constant retaliatory tariffs between the two economic behemoths since early last year.

Several trade talks between the two nations have not brought any solutions to the trade war, still affecting investor sentiments towards global markets. For the KLCI, the trade war remains a major factor affecting analysts’ forecasts.

Kenanga Research said the index’s underlying trend remains bearish but does not discount the possibility of a technical rebound as the KLCI has been in oversold territory for about a month. “Look out for overhead resistance levels at 1,630 and 1,650. If selling pressure continues, the key support levels to keep an eye on are 1,570 and 1,550,” Kenanga Research wrote in a note yesterday. - Source link


Read more: 


Clout eroded as US shirks intl duties

I think it's necessary to include something Liu once said that also applies here, “The world needs a new America. It needs an America that is free of prejudice and intolerance. It needs an America that understands respect, that matches words with deeds, that understands the principles of benevolence, righteousness, propriety, wisdom, and faithfulness. The world would be lucky if the new America could become such a country.”

Why are the Chinese brushing aside Trump's tweets?

Trump has turned Twitter into a stage for his political show, where he says things to gain votes for reelection. He repeats what he has done for the US – to provide Americans welfare, and to “make America great again.” But he is actually damaging the interests of his own country and people.
 

China unfazed by swaying US policies

In today's world of production patterns, no country can marginalize China anymore. Whichever country forcibly cuts economic ties with China will only harm itself. After Trump tweeted, he received almost one-sided opposition and doubts, which showed how inappropriate was his unrealistic proposal.

Former U.S. treasury secretary criticizes policies of Trump administration

https://youtu.be/s9ZeIhimLqM

American expert accuses Western countries of double standard in HK affairs

https://youtu.be/M6YUjfwPVxs

Poking its nose into other countries' affairs is an American obsession

The past few months have been sad and depressing for those who live in Hong Kong. The safety guaranteed on the streets of Beijing and Xi'an should be available to the people of Hong Kong. China should not be asked to compromise its sovereignty. If Americans want to boycott anyone, they should do so with their politicians who support the Hong Kong unrest.

West will shed no tears for Hong Kong

Many Hongkongers are confusing right from wrong while Western public opinion constantly delivers the ideological energy that the radical protesters need. The West has shed no tears for Iraq, Syria and Ukraine, which had gone through similar hardships. Now, it is turning Hong Kong into the forefront of the struggle with China, and, as usual, they will shed no tears for the city's misery.

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New U.S. arms sale to Taiwan and rising trends of 'white supremacy' in the U.S https://youtu.be/yMiBxgtRxnM White House p..

A profile photo of Peter Navarro Photo: IC ○ Navarro used the idea of the seven sins to criticize China, which showed his narrow and d...
A rioter waves a US national flag in Tsim Sha Tsui district in Hong Kong on August 11. Photo: AFP https://youtu.be/m5xXUsU9oEI The ...

Protesters in protective gear holding up a symbolic yellow umbrella and an American flag while marching through the Sha Tin District ...
https://youtu.be/DPt-zXn05ac US Secretary of State Mike Pompeo: "I was the CIA director. We lied, we cheated, we stole. We had ent..

Monday 19 August 2019

'We lied, we cheated, we stole', ‘the Glory of American experiment’ by US Secretary of State/Ex-CIA director Mike Pompeo

https://youtu.be/DPt-zXn05ac

US Secretary of State Mike Pompeo: "I was the CIA director. We lied, we cheated, we stole. We had entire training courses. It reminds you of the glory of the American experiment."

Pompeo said this at an event at Texas A&M University on April 15, 2019. Here is the official State Department transcript:https://www.state.gov/secretary/remar....

https://thegrayzone.com Support our original journalism at Patreon: https://patreon.com/grayzone Twitter: https://twitter.com/grayzoneproject Facebook: https://facebook.com/thegrayzone

‘Glory of American experiment’: What did Pompeo mean by that?


https://youtu.be/OrthGnb_mlc

Mike Pompeo is loved by the Koch brothers, big oil, Islamophobes, people against marriage equality, and of course, Donald J. Trump. Narrated by Judy Gold. » Subscribe to NowThis: http://go.nowth.is/News_Subscribe 

With business ties to foreign governments, connections to the defense and oil industries, nonchalance towards torture, and hatreds of entire cultures, it’s no surprise Mike Pompeo’s run as Trump's CIA Director was short lived – but his time in the White House continues on as U.S. Secretary of State and head of all U.S. diplomatic relations. 

Pompeo: 'I was the CIA director. We lied, we cheated, we stole'

https://youtu.be/qfrhATD4nM0

 'I was the CIA director. We lied, we cheated, we stole. It’s – it was like – we had entire training courses. It reminds you of the glory of the American experiment' - Pompeo

Mike Pompeo says, “Lying, cheating and stealing reminds you of the glory of the American experiment”


https://youtu.be/Lc8oDNaDlek

Pictured above: US Secretary of State Mike Pompeo, telling it like it is: lying, cheating and stealing are the glory of the American experiment. It's what the capitalist West does best. He was adored by the audience like a success guru. 

Source article with all the images and hyperlinks: https://chinarising.puntopress.com/20... 

Much more at www.chinarising.puntopress.com, http://chinarising.puntopress.com/201... and http://apps.monk.ee/tyrion


Mike Pompeo says, “Lying, cheating and stealing reminds you of the ...



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Illustration: Liu Rui/GT US President-elect Donald Trump appointed Peter Navarro, a strident critic of China, as head of the new Nat...



https://youtu.be/gUR250IZyj0 China Has Not Manipulated the Yuan, PIIE's Bergsten Says https://youtu.be/WFhtHy3hZcg https://...
A profile photo of Peter Navarro Photo: IC ○ Navarro used the idea of the seven sins to criticize China, which showed his narrow and d...
A rioter waves a US national flag in Tsim Sha Tsui district in Hong Kong on August 11. Photo: AFP https://youtu.be/m5xXUsU9oEI How ...
 

Wednesday 14 August 2019

Singapore growth forecast down to 1%

Unknown future: As Singapore further cut its growth forecast, New Zealand, India and Thailand also cut their interest rates signalling concerns on growth outlook. — AFP

SINGAPORE: Singapore slashed its full-year economic growth forecast as global conditions were seen worsening and data confirmed the slowest growth rate in a decade amid mounting fears of recession in the city-state.

The government cut its forecast range for gross domestic product in Singapore – often seen as a bellwether for global growth because international trade dwarfs its domestic economy – to zero to 1% from its previous 1.5%-2.5% projection.

Singapore’s downgrade adds to concerns globally about the effect of increasing protectionism on exports and production.

The deterioration in the global outlook has pushed central banks to cut interest rates and consider unconventional stimulus to shield their economies.

“GDP growth in many of Singapore’s key final demand markets in the second half of 2019 is expected to slow from, or remain similar to, that recorded in the first half, ” the trade ministry said in a statement to the media yesterday.

The ministry flagged a host of growing economic risks including Hong Kong’s political situation, the Japan-Korea trade dispute, the Sino-US tariff war, slowing growth in China and Brexit.

Final second quarter GDP data yesterday showed a 3.3% on-quarter contraction on a seasonally-adjusted annualised basis. That was slightly smaller than the 3.4% decline seen in the government’s advance estimate but deeper than a 2.9% fall predicted in a Reuters poll and a sharp contrast to the robust 3.8% first quarter expansion, which was driven by brisk construction activity.

Yesterday’s data also confirmed annual GDP expanded 0.1% in April-June from a year earlier, its slowest rate in a decade, and lower than poll expectations of 0.2% and the first quarter’s 1.1%.

Singapore’s benchmark stock index fell 1.2% to a two-month low in early trade, underperforming other bourses in the region.

Singapore has been hit hard by the Sino-US trade war, which has disrupted world supply chains in a blow to business investment and corporate profits.

Also yesterday, Singapore cut its full-year forecast for non-oil domestic exports to a 9% contraction from an 8% fall previously.

That comes after a 26.9% drop in electronics exports in the second quarter year-on-year.

“With trade tensions between the US-China unlikely to abate anytime soon, we expect exports and trade-related services to push the economy into technical recession in Q3, ” said Sian Fenner, lead Asia economist at Oxford Economics.

New Zealand, India and Thailand all cut interest rates last week, signalling major concerns about the outlook for economic growth. Last month, the US Federal Reserve cut interest rates for the first time since 2008.

Singapore Prime Minister Lee Hsien Loong said in an annual speech last week that the government stood ready to stimulate the economy.

“It feels like the storm is coming if you look at the whole macro economic fundamentals softening, ” said Selena Ling, head of treasury and strategy at OCBC Bank.

“All the downside risks are piling up on one side, ” Ling added, pointing to the myriad of global risks flagged in the trade ministry statement. — Reuters

Read more:

FBM KLCI dives below 1,600 level to near four-year low
FBM KLCI dives below 1,600 level to near four-year low
by Wong Ee Lin



Related posts:

Peter Navarro, a hawk that 'lacks intellect and common sense' is Trump's trade adviser or political agitator?

 

A new cold war in trade wars also is a tech war and currency war now !


American anti-China Hawks ignited the trade war, are Trump's advisors


Peter Navarro, a hawk that 'lacks intellect and common sense' is Trump's trade adviser or political agitator?

A profile photo of Peter Navarro Photo: IC
○ Navarro used the idea of the seven sins to criticize China, which showed his narrow and distorted mind

○ Navarro has been called the US President Donald Trump's "spirit animal" as Donald Trump Jr. called him "a fierce warrior" for his father's America First trade agenda

○ Politicians like Navarro have ruined the efforts made in the China-US trade talks and US society will pay for this, analysts said

White House trade adviser Peter Navarro on Sunday said that China must end the "seven deadly sins," a remark that was criticized by Chinese experts as "absurd and full of hostility" and that Navarro's dominance of economic issues in the White House is a source of sadness in current China-US trade ties.

Navarro, 69, is a White House trade adviser and ardent supporter of the trade war. Several days earlier, Trump escalated his tariff war with China and Navarro was the only person at the announcement who supported it.

Navarro used the Christian concept of the seven deadly sins to criticize China, which showed his narrow and distorted mind. His willful moves to stir up hatred between countries are the real sin, analysts said.

He has written three books discrediting China and produced documentaries portraying Beijing as a threat. He ingratiates himself with those in the White House in order to get promoted. He has a "big mouth" and was told to shut up after saying the Canadian Prime Minister deserves "a special place in hell." He has written a number of books, but has always been an unrecognized "non-mainstream economist."

Navarro's distinguishing feature among White House staff and senior officials is likely not that he is more of a "hawk" than others, but that he lacks intellect and common sense. He is highly compatible with his leader in his use of irrational methods, a Chinese scholar told the Global Times.

A US cargo ship (back) is seen at the Yangshan Deep-Water Port, an automated cargo wharf, in Shanghai on April 9, 2018. Photo: VCG

Out of favor

"Imagine the United States simultaneously engaged in trade wars with China, India, Pakistan, Thailand, the Philippines, Singapore, Ukraine, Mexico, Saudi Arabia, Chile, Brazil and Turkey," said a report by the Axios news website in August 2018.

Axios has obtained a copy of a draft executive order Navarro put together in the fall of 2017 that would have imposed tariffs on every product imported from every country doing significant business with North Korea, according to Axios.

"Its death is thanks to — well, just about everyone. Officials at Commerce, State, Treasury, and the Office of the United States Trade Representative all considered the proposal totally unworkable," Axios reported.

As long as he's in the administration, there will be a persistent, noisy, enthusiastic voice for these kinds of tariffs, according to Axios.

In fact, Navarro was out of favor in the White House when he proposed the tariffs. The American website Vox Media recalled that in the fall of 2017, John Kelly, then White House chief of staff, began controlling advisers' access to Trump by having Gary Cohen, director of the White House national economic council, restrain Navarro.

What did Navarro do? In order to get more direct contact with Trump, he often lurked in the West Wing of the White House at night and on weekends.

Navarro was named director of the newly established White House national trade council after President Trump's election in 2016, and he remained director after it was transformed into the White House office of trade and manufacturing policy in April 2017. However, Navarro's first year in the White House was difficult because Trump's economic team was run by "globalists."

An American with ties to Trump's business team told the Global Times that Navarro did not have his own team in the first few months in the White House and had to attend meetings alone. Not only was he excluded from many high-level strategy meetings, he was also required to copy all work emails to Cohen.

However, two personnel changes in early 2018 gave Navarro an opportunity. In February, Rob Porter, a top political aide and White House staff secretary who was a key supporter of free trade, resigned over domestic violence allegations. In March 2018, Cohen resigned after Trump insisted on tariffs on steel and aluminum products.

Navarro was eager for the vacant position and went all out for it in private, but publicly pulled his punches and said he wasn't competing for it, Politico reported.

Navarro eventually failed, but rose in stature. According to one American trade expert, Trump wanted protectionism, but almost everyone in the room disagreed.

Lü Xiang, an American issues expert at the Chinese Academy of Social Science, told the Global Times that Navarro's role in the process of economic policymaking in White House was elevated after Cohen's resignation. It is said that his annual salary was raised from second class to first class from March 2018, lower only than that of the President and vice president, which shows the appreciation with which he has been received.

In May 2018, the China-US high-level trade consultation was held in Washington.

A reporter at Bloomberg said the White House had not scheduled Navarro for the talks because of his inappropriate and unprofessional behavior. But Navarro criticized Steven Mnuchin, secretary of the US Treasury, in the media for giving too much ground in the talks. A few days later, Trump repudiated the negotiations and imposed taxes on $50 billion worth of Chinese products.

Given Navarro's influence, Time magazine published an article in August 2018 saying that he does not have as much power as Mnuchin or the same responsibilities as trade representative Robert Lighthizer, but that his role should not be underestimated. If Stephen Miller, a controversial White House senior adviser, is the infamous player behind immigration, Navarro is the core leader of a series of much-criticized economic policies.

Unpopular loser

In published photos, Navarro looks somber, with a high forehead and gray hair.

He has a lot more to show for himself, with his Harvard degree, his doctorate and so on, but it is his paranoia that is his most memorable feature. In fact, Navarro originally wanted to be a politician, not an adviser, but he had a problem: people don't like him.

Navarro was originally registered as a Republican, but ran unsuccessfully for office four times as a Democrat in the 1990s. He was once close to Nancy Pelosi, speaker of the United States House of Representatives, and former secretary of state Hillary Clinton.

When he ran for congress in 1996, then-president Bill Clinton opposed him. His defeat was devastating: his wife divorced him and he fell deeply into debt.

Until 2008, he was a supporter of Democratic politicians, especially Hillary Clinton. But in the election of 2016, Navarro became an adviser to Trump. Trump is said to have suffered without the help of economists, and his son-in-law Jared Kushner asked Navarro to join after searching Navarro's book on Amazon.

Born into a working-class family, Navarro grew up with his mother and was a hard-working graduate of two prestigious universities, Tufts and Harvard. However, his experience can be described as changeable and ill-fated.

Lü argues that his life experience has led to Navarro's perennial unhappiness, and that he will spare no effort to translate his absurd claims into concrete policies once he is promoted by a leader who approves of him.

Although he is valued by his leader, Navarro was not liked by his colleagues. According to some American media, Navarro has a tough personality, and can be unaccommodating and unpopular. Navarro is as rude as ever when Trump cannot hear, scolding and belittling those who disagree with him.

'Spirit animal'

Navarro was called "President Trump's spirit animal" by Axios news website, as many scholars and experts in economy poured scorn upon his ideas on trade.

"Peter is a fierce warrior for my father's America First trade agenda, and while it may upset some members of the failed bipartisan establishment of the Washington Swamp, he understands that we can't allow China to continue taking advantage of American workers and hollowing out our industrial base," Donald Trump Jr. said in a statement to The Washington Post. "His only agenda is my father's agenda and the White House is lucky to have him."

Some media pointed out that Navarro is the president's intimate friend only when they talk about tariffs.

Experts said that Navarro was away from the spotlight for a while but then came back with a madder attitude.

Navarro appeared on Fox news on June 13, criticizing China in many fields, including intellectual protection and currency.

Many of Navarro's propositions on trade and economy are condemned as unreasonable. Many mainstream economists think he has created a new school of economics dubbed the "stupid school." His theories usually go against the principles of economics and he has made basic mistakes. In his articles, he has confused tariffs with added-value tax, Lü said.

"While purportedly an economist by training, Navarro's economics is misguided, inaccurate and politicized," Stephen Roach, a faculty member at Yale University, and former chairman of Morgan Stanley Asia, wrote in an editorial for the Global Times in July 2018.

It is normal that China and the US have differences, as they have their own interests. Instead of offering constructive advice to deal with these differences, Navarro has acted more like a political agitator. China and the US have gone through 12 rounds of trade talks and are trying to find ways to reach a consensus. The actions of some politicians, including Navarro, remind us that certain politicians' tricks have ruined the good momentum of the trade talks again and again, Chinese experts noted that the US society will eventually pay for these politicians' wrong deeds.

By Liang Yan, Qing Mu and Fan Lingzhi, Wang Huicong contributed to the reporting Source link 

Headless Hawk


Peter Navarro Photo: IC

Peter Navarro: trade adviser or political agitator?  


White House trade adviser Peter Navarro on Sunday accused China of committing the "seven deadly sins." He said China must "stop stealing our intellectual property, stop forcing technology transfers, stop hacking our computers, stop dumping into our markets and putting our companies out of business, stop state-owned enterprises from heavy subsidies, stop the fentanyl, stop the currency manipulation" before the trade war comes to an end.

The "seven deadly sins" refer to the seven original vices in Catholic teachings. Such a metaphor reflects Navarro's narrow-mindedness and psychological distortion. He wantonly hyped hatred between major powers, which is a real sin.

Navarro's seven accusations against China are all clichés. The accusations are long-term China-US disputes and different definitions of the disputes. But of all remarks made by US officials on such differences, Navarro's summary was the most vicious. It was not only ridiculous, but also full of hostility. His words have exposed the fact that his virtues can't compare with his position. It is the woe of China-US economic and trade relations that such a person is hijacking the White House's economic discourse power.

US media reported that Navarro is a key figure who has helped bring about the US decision to impose additional tariffs on Chinese products. He is a major spoiler contributing to the US breach of promises.

China has led its 1.4 billion people to prosperity and development. The country has not been involved in any war in more than 10 years, and has played a positive role in the UN's climate action. As a trading power, China has made every deal with the US by mutual consent.

It is normal for China and the US to have different standpoints toward their disputes. Trade is mutually beneficial and China cannot force the US to have hundreds of billions of trade with it. This is common sense. By no means can Chinese people understand why the US could define China-US trade disputes in so many weird ways. The US side stubbornly insists on its values about interests, which are not suitable in current globalized world.

The two countries can improve trade balance by adjusting many practices. The Chinese side is willing to take into consideration some of the US' concerns.

But wielding a tariff stick is unacceptable to China. Navarro said China-US trade won't end unless China satisfies all the conditions. He speaks as if it's only China's one-side wish to end the trade war. Isn't it boring to still threaten China so shallowly after one and a half years of trade war?

The fact is if the US side has no sincerity to reach a fair deal, China is prepared to fight the trade war to the end. China is being forced to do so, but it can do it well under pressure until the other side is discouraged.

It seems Navarro didn't offer the president a technical solution to solving China-US differences. He behaves more like a political agitator. The two sides have gone through 12 rounds of trade talks through which negotiating teams work hard to find common ground.

But Navarro reminds us that some people's political calculations keep impacting on the US negotiating position. American society will eventually pay for these people's politics.

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Tuesday 27 November 2012

U.S. Treasury Sticks It To The China Haters

Treasury says it again, China  not manipulating its currency.

This is getting better and better.

On the market side, the China haters are looking more and more ridiculous. Not that I’m a China bull. I’m not smart enough to say that. And I have money in China. But I am smart enough and am surrounded by even smarter people who have led me to believe there is no hard landing.  So on the market side, the China naysayers are wrong.

On the political side, the China haters who think the country is stealing all our Nike shoe and Optimus Prime assemblying jobs thanks to their currency manipulation are also wrong. For the second time this year, the U.S. Treasury Department said in its report to Congress on international economic and exchange rate policies that, wait for it…China is not a currency manipulator.  The two or three guys advising Mitt Romney on China were wronger than Tim Tebow starting as QB for the Jets.

“The Treasury Department once again made the right call on China’s currency policy in its report to Congress. Labeling China a currency ‘manipulator’ would do little to help us reach the goal of a fully convertible currency and market-driven exchange rate for China,” said John Frisbie, president of the U.S. China Business Council, a lobby of multinationals working in China.

“Adding the very public ‘manipulator’ tag might simply produce pressure within China to slow down progress on this (forex) issue,” he said in a statement Tuesday.

China’s exchange rate has strengthened over 30 percent against the dollar over the past several years. The upshot is that the exchange rate has little to do with the U.S. trade balance or employment. Even as the renmimbi weakened, the U.S. trade deficit with China worsened.

Of course, not being a currency manipulator doesn’t mean that the renmimbi (RMB) is properly valued.

From the report:

The renminbi has appreciated by 9.3 percent in nominal terms and 12.6 percent in real terms against the dollar since June 2010. China’s trade and current account surpluses both have fallen to 2.6 percent of GDP from peaks of 8.8 and 10.1 percent of GDP, respectively.  The Chinese authorities have substantially reduced the level of official intervention in exchange markets since the third quarter of 2011, and China has taken a series of steps to liberalize controls on capital movements, as part of a broader plan to move to a more flexible exchange rate regime.  In light of these developments, Treasury has concluded that the standards identified in Section 3004 of the Act during the period covered in this Report have not been met with respect to China. Nonetheless, the available evidence suggests the RMB remains significantly undervalued, and further appreciation of the RMB against the dollar and other major currencies is warranted.” China’s real effective exchange rate (REER) – a measure of its overall cost-competitiveness relative to its trading partners – has appreciated since China initiated currency reform in mid-2005, after declining between 2001 and 2005. From July 2005 to October 2012, China’s real effective exchange rate appreciated by 27 percent. The REER appreciated particularly rapidly in the last several months of 2011, resulting in total REER appreciation of 6.2 percent over the course of 2011. Over the ten months of 2012, China’s REER has been unchanged.

The International Monetary Fund concluded that the RMB was moderately undervalued against a broad basket of currencies, and said that the RMB was undervalued by between 5 and 10 percent as of July 2012.

Reserve accumulation, an indicator of the degree of Chinese intervention in the currency market, has slowed markedly since the third quarter of 2011 as China buys less U.S. debt.

Even with the reduced pace of dollar accumulation, China’s official foreign exchange reserves remain exceptionally high compared to those of other economies, and well beyond established benchmarks of reserve adequacy. As of end-September 2012, the PBOC held $3.3 trillion in foreign reserves, equivalent to 42 percent of China’s GDP, or about $2,440 for every Chinese citizen. 

10 Things “The End of Cheap China” Means for You
Getty Images North America Your espresso will get more expensive . . .

Friday 27 January 2012

Yuan or not to Yuan? Yuan way to new monetary order

  A 'grown-up' yuan means a more stable world economy

WHAT ARE WE TO DO By TAN SRI LIN SEE-YAN

CHINESE New Year has come and will soon go. The eurozone debt crisis is well past two years. Yet uncertainty persists. The World Bank's January 2012 Global Economic Prospects reports:
:
:

World economy has entered a very difficult phase characterised by significant downside risks and fragility and as a result, forecasts have been significantly downgraded. However, even achieving these much weaker outturns is very uncertain Overall, global economic conditions are fragile.”

This week's IMF World Economic Outlook says more of the same: “The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere.” China, India, South Africa and Brazil have entered a slowing phase.

No country and no region can escape the consequences of a serious downturn. Nevertheless, growth in the East Asia and Pacific region (excluding Japan) is expected to slowdown to about 7.8% in 2012 (8.4% in 2011) and stabilise in 2013.

This reflects continuing strong domestic demand (evident in third quarter or 3Q 2011 GDP) while exports will slow to about 2% due to Europe heading towards recession and sluggish rich “Organisation For Economic Coercion And Direction (OECD)” demand.

The middle-income nations are, I think, in a good position to weather the global slowdown, with significant space available for fiscal relaxation, adequate room for interest rate easing, ample high reserves and rather strong underpinning for domestic demand to rise.

I see the modest easing in China's growth being counterbalanced by a pick-up in GDP gains in 2013 over the rest of the region. Outside China, growth has slackened sharply to 4.8% in 2011 (6.9% in 2010), but is expected to strengthen in 2012, reaching 5.8% in 2013.

China

GDP growth in China, which accounts for 80% of the region, had eased to about 9.1% in 2011 (10.4% in 2010) and is expected to slacken further to a still robust 8.2%-8.4% in 2012.

The World Bank projections point to growth moderating at 8.3% in 2013, in line with its longer-term potential GDP. Expansion is expected to emanate from domestic demand, with private spending and fixed capital outlays contributing most of the growth in 2012.

For China, the health of the global economy and high-income Europe in particular, represents the key risk at this time. Domestic risks include property overheating, local government indebtedness, and bloating bank balance sheets.

The 4Q 2011 growth of 8.9% annoy investors who are looking for indications either weak enough to justify further policy easing or strong enough to allay fears of a hard landing. Bear in mind the forecast growth for 2012 will be the weakest in a decade, and may cool further as exports slump.

The Chinese economy is buffeted by two very different forces: (i) slow global growth will hurt Chinese exports (especially to its largest trading partner, European Union) which rose by 7% in December, and exporters foresee more trouble ahead; however, (ii) analysts point to strong retail sales (up 18% in December) reflecting rising wages and domestic spending which represented about 52% of GDP in the first quarter, higher than in 2009-11.

China is counting on its massive effort to build low-income “social housing” to provide enough demand to keep the real-estate market from collapsing.

It is unclear whether China can accelerate this program to build 36 million subsidised housing by 2015enough to house all of Germany's households. But financial markets are anticipating worse news ahead. After all, the Shanghai Composite Index fell 21% in 2011. As the adage goes, stock analysts did forecast 10 of the past 3 recessions!



The yuan

Appreciation of the yuan (renmimbiRMB) against the US dollar in 2012 is expected to slow to about 3%, from +4.7% in 2011. The yuan closed at 6.3190 at end 2011, up about 8% compared with June 10 (when China effectively ended its 2-year long peg to the US dollar and has gained 30% since mid-2005 when it was last revalued.

The slowdown reflects growing demand for the US dollar amid uncertainty, lower growth, diminishing trade surplus, and growing US military presence in Asia, according to China's Centre for Forecasting Science (of the Chinese Academy of Sciences) which reports directly to the State Council, China's Cabinet.

Much of it will be in the latter year as China is likely to keep the yuan relatively stable in the first half to allow time to assess the impact of goings-on in the euro-zone. Dollars are pumped in via state banks, providing markets with a clear signal it will not allow the yuan to depreciate, while not in a hurry to let it appreciate either. The yuan has since moved sideways.

Off-shore yuan

To make the yuan a true reserve currency, China begun to liberalise currency controls and encourage an offshore yuan market in Hong Kong, creating an outlet for moving the currency across borders. However, foreign investors in China have been slow in using the yuan.

In practice, it is still difficult to buy & sell yuan because of paperwork & bureaucracy. It is still easier to settle in US dollar as it is the universal practice. Its convenience outweighs the potential costs of any unfavourable move in the US dollar-yuan rate. Nonetheless, China is encouraging more businesses to use the yuan and more US banks to step-up their yuan-settlement business.

This market will grow as China diligently moves to internationalise its currency. Encouraged by the authorities, a vibrant offshore yuan market has blossomed in Hong Kong. Beijing still controls the currency and how the yuan bought in Hong Kong can be brought back to China.

Yuan deposits in Hong Kong rose more than 4 times to 622.2b yuan (nearly US$100bil) at end September 2011 from a year earlier according to the Hong Kong Monetary Authority, and now account for 10.4% of bank deposits.

Growth in offshore yuan stalled in late 2011 as China slowed its currency appreciation against the dollar. Given Beijing's gradualist approach to reform, the market will soon revive.

An audience poll at the recent 2012 Asian Financial Forum in London indicated 63% believes full yuan convertibility is more than 5-years away.

The very fact that London wants to be a yuan-trading centre now says a lot. Only 10% of China's international trade is settled in yuan, rising to 15% in 2012. It's still a small market in the global context.

The yuan is used for just 0.29% of all global payments in November 2011 according to financial messaging network Swift. By comparison, the euro's share is about 40%.

Dim-sum bonds

A booming business in dim-sum bonds (offshore yuan denominated bonds) followed, with companies including Caterpillar and McDonalds issuing such bonds. In September 2011, a spurt of capital flight towards “safe haven” assets in the US tied to the worsening debt crisis in Europe caused currencies of emerging nations to depreciate against the US dollar.

In East Asia, modest declines were recorded compared with South Africa (the rand fell 22%) and Brazil (the real dropped 18%). Only the Indonesia rupiah (down 5.8%) and the Malaysia ringgit (fell 5.4%) come under some pressure.

This event slowed the appreciation of the yuan and with it, trading in dim-sum bonds eased as investors were no longer in a hurry to invest. Over the medium-term, most analysts expect this yuan market to grow in the face of its massive US$3.18 trillion in reserves, as China moves to build its international status.

When dim-sum bonds started to hit the market in 2010, investors were enthusiastic, bidding up prices and driving down yields. But in the second half of 2011, the average price of investment grade dim-sum bonds fell 3.3%, amid a broad flight towards quality spooked by euro-zone turmoil and Chinese accounting scandals.

Bankers hope new entrants (private banks, commercial banks, mutual funds & life insurers) will give the market more stability this year. They would add depth & breath to the market, which tripled to 185b yuan (US$30bil) in dim-sum bonds issued in 2011. Expectations are for such bond issuance to reach 240 billion yuan this year, as new issuers (including more foreign companies) join early adopters such as government entities & state run banks.

This offshore bond market has developed well over the past year. Investor diversification in both types & geographics is still evolving, which is key to the healthy growth of the market. Equally important, investors look to the continuing appreciation of the yuan.

In addition, its average yield has risen to 3.8% (from 2.35% since mid 2011) and most now trade at higher yields than comparable US dollar bonds.

This rise in yields reflects expectation for (i) slower yuan appreciation; (ii) increase in supply; and (iii) investors desire for a higher liquidity premium during market downturns. Overall, the dim-sum market is turning into a buyer's market.

Bilateral arrangements

China is forging ahead in laying the groundwork to internationalise the yuan via bilateral arrangements with foreign companies, nations & financial centers, particularly Hong Kong (mainly because it can fully control the terms of the market). More mainland-based financial institutions will be able to issue yuan denominated bonds in Hong Kong.

This is part of a broader effort, first started in July 2009 when it encouraged enterprises in Shanghai & Guangzhou province to use the yuan when settling trade with Hong Kong, Macau and some foreign companies (see my column “China: RMB Flexibility Not Enough” of July 3, 2010).

The post-X'mas direct yuan-yen trade deal forms part of a wide-ranging currency arrangement between China & Japan to give the use of the yuan a big boost. After all, China is Japan's largest trading partner with 26.5 trillion yen in 2-way transactions last year. Encouraging direct settlement in bypassing the US dollar would reduce currency risks and trading costs. Also, Japan will buy up to US$10bil in yuan bonds for its reserves even though it represents no more than 1% of Japan's US$1.3 trillion reserves. And, it is now easier for companies to convert Chinese and Japanese funds directly into each other without an intermediate conversion to US dollar. About 60% of China-Japan trade is settled in US dollar, a well-established practice.

The package allows Japan backed institutions to sell yuan bonds in the mainland (instead of Hong Kong) helping to open China's capital market.

In recent weeks, China has taken new steps to promote the use of yuan overseas, including allowing foreign firms to invest yuan accumulated overseas in mainland China; widening the People's Bank of China (its central bank) network of currency swaps with other central banks to enable their banks to supply yuan to their customers, including with Thailand, South Korea and New Zealand totalling 1.2 trillion yuan.

It already has completed arrangements with the big Asean counterparts. Berry Eichengreen (University of California at Berkeley) observed: “Japan appears to be acknowledging implicitly that there will be a single dominant Asian currency in the future and it won't be the yen.”

But Harvard's Jeffrey Frankel is more down to earth: “This hastens a multicurrency world, but this is just one of 100 steps along the way.”

China still has a way to go in: (i) getting the yuan fully convertible (ii) reducing exchange rate interventions (iii) liberalising interest rates, and (iv) reforming the banking system. In all, so the yuan can really trade freely.

What to do?

The China-Japan deal points the way, nudging the yuan towards the inevitable becoming a reserve currency alongside now discredited US dollar and the euro. This is to be welcomed by all.

China must realise a fully internationalised yuan should be free to float (and to appreciate) part of its overall reform. Over the longer term, though, avoiding huge imbalances is good for everyone, not least China. While it is understandable for its Prime Minister to label China today as “unstable, unbalanced, uncoordinated and ultimately unsustainable,” opportunities to take advantage of new openings don't come often.

Alexander Gerschenkron, my professor at Harvard (in my view, the best economic historian of his time) points to economies like China as having “advantages in backwardness,” including China's ability to weather shocks: high reserves, robust fiscal situation and comfortable external position.

Shakespeare's Hamlet sums it up best: “If it be not now, yet it will come - the readiness is all.” A grown-up yuan is good for China's welfare.

It also means a more stable world economy which benefits the United States. For China, there will never be enough cushion. Politicians need to seize the moment and act boldly.

Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching & promoting the public interest. Feedback is most welcome; email: starbizweek@thestar.com.my


To Yuan or not to Yuan, that is the question

The government of Zimbabwe is considering using China's Yuan as their national currency.

China has reportedly been offered mining rights by Mugabe, despite protests [EPA]
Bulawayo, Zimbabwe - From downtown shops that stock cheap clothing and shoes that fall apart after one wear, to mining concessions in platinum, gold and diamonds - the Chinese finger is now in virtually every Zimbabwean pie.

From city sidewalks to low-income suburbs, the Chinese have become part of the local population, and if some senior government bureaucrats have their way, the country could soon find itself adopting the Chinese Yuan as its official currency.

For some influential monetary policy czars, the massive assailing of the Zimbabwean economy by the Chinese now only requires the Yuan to strengthen these economic reconstruction efforts.

Invited by President Robert Mugabe as part of his infamous 2004 "Look East" policy to help drive the economy and employment creation, after relations with former traditional investment partners the European Union and United States soured, China has been able to create its own little sphere of influence and establish an ubiquitous presence in Zimbabwe.




Zimbabwe looks to China for economic revival
This is despite being unpopular with Zimbabwe's industrial and commercial players - and general members of the public who accuse the Chinese of poor labour practices and shoddy goods and services.

Late in 2011, Reserve Bank governor Gideon Gono, seen by many as a close ally of Mugabe, announced he was in favour of having the Chinese Yuan as the country's official currency. After the Zimbabwean dollar was suspended in 2008, the country has been using a multi-currency regime, which includes the use of the US dollar, the South African rand and the Botswana pula.

According to Gono, the Chinese Yuan would be introduced alongside the Zimbabwean dollar. Mugabe's political supporters have been calling for currency reforms to bring back the Zimbabwean dollar.

"With the continuous firming of the Chinese Yuan, the US dollar is fast ceasing to be the world's reserve currency and the eurozone debt crisis has made things even worse," Gono told state media in November.
"As a country, we still have the opportunity to avoid being caught napping, by adopting the Chinese Yuan as part of consolidating the country's 'Look East' policy.

"It's only recently when we had the startling revelations, with Angola offering to bail out her former colonial master Portugal from her debt crisis. This can also happen with Zimbabwe if we choose the right path," Gono added.

He continued: "If we continue with our 'Look East' policy, it will not be long [until] we will also be volunteering to bail out Britain from her debt crisis, and I will not wait for my creator's day before this happens. There is no doubt that the Yuan, with its ascendancy, will be the 21st century's world reserve currency."

'Handing over' the country?

Officials from Mugabe's Zimbabwe African National Union - Patriotic Front see huge potential in using the Yuan, citing the growth of the Chinese economy under BRICS, which brings together emerging global economic powerhouses Brazil, India, China and South Africa.

But not everyone is as upbeat about such prospects.

There are concerns that this could mean "handing over" the country to the Chinese, who already have been offered huge mining rights by Mugabe - despite protests from his coalition government partners. The country's finance minister, Tendai Biti, has said that Mugabe was forfeiting state resources to China, whom critics are calling "Africa's new coloniser".

Economist Eric Bloch said "it is not practical" for Zimbabwe to adopt the Chinese Yuan.

"Zimbabwe won't have any interaction with international markets, as the US dollar remains the standard currency in international trade," Bloch explained.

With China increasingly being touted to overtake the US as the world's largest economy, the temptation to embrace all things Chinese has proven too much to resist for poor economies across the globe, contends Tafara Zivanayi, an economics lecturer at the University of Zimbabwe.

"There has been false hope given to Chinese economic growth, with many African countries imagining they can transfer this growth to their own economies," Zivanayi said.

"Such decisions (to adopt a foreign currency) as usually based on international trade indices and monetary policies of the country where the currency is domiciled. Even if there have been projections that the Chinese economy will surpass the US economy, this won't happen overnight," Zivanayi said.

"There are still concerns about Chinese penetration of international, especially low income, markets and creating wealth for itself and not host countries," Zivanayi said.

Even traders who have long ridiculed cheap Chinese products and have no grasp of international trade intricacies find themselves offering opinions about the prospects of adopting the Chinese Yuan.

"As long as things have worked fine for us using the American dollar, why change that formula?" asked Thabani Moyo, a commuter omnibus driver. His colleagues, who are struggling to handle giving change in the basket of currencies they receive, nodded in agreement.

Gono and other opponents of US currency cited this lack of change in coins as a reason why Zimbabwe needed to adopt a single currency or revert to its own, previously useless, dollar.

However, during the presentation of the national budget for the 2012 fiscal year, Biti told parliament that Zimbabwe would continue using US currency until the economy stabilised.

Not everyone supports the introduction of the Chinese Yuan. "We want real money, not zhing-zhong," taxi driver Jourbet Buthelezi said, referring to the pejorative term Zimbabweans use for sub-standard Chinese goods.

A version of this article was first published on Inter Press Service.
Source:
IPS