Chinese currency pegged to USD

[wildkactus]

this may interest some of you,

its a credit ratings agency from china, they just released they own soverign dedt ratings, no surprise but china beat the US.

Dagong Credit Rating Agency

Happy Trading

 

[Timmy]

Any thoughts on the huge jump in Chinese exports announced over the weekend sinner (or anyone)?

jumped 43.9 percent in June to $137.4 billion and the trade surplus more than doubled to $20 billion, the highest in eight months
http://www.businessweek.com/news/2010-07-11/china-s-exports-boost-sentiment-deutsche-bank-says.html

 

[sinner]

Any thoughts on the huge jump in Chinese exports announced over the weekend sinner (or anyone)?

jumped 43.9 percent in June to $137.4 billion and the trade surplus more than doubled to $20 billion, the highest in eight months
http://www.businessweek.com/news/2010-07-11/china-s-exports-boost-sentiment-deutsche-bank-says.html

Hi Timmy,

Sorry I did not get back to you on this sooner. I have been monitoring Chinese macro stories closely, and in the end I got a little overwhelmed by the amount of information to post any sort of useful redux or analysis on the issue! Will try and compile all the links and articles into something meaningful at some point this week.

However, Michael Pettis, who is no joke when it comes to discussing the Chinese macro picture, has plenty of very very interesting things to say.

http://mpettis.com/2010/07/the-capital-tsunami-is-a-bigger-threat-than-the-nuclear-option/

Probably one of the most insightful articles I've read in a while. Definitely contrarian against both the current bull and bear arguments!

 

[Timmy]

Sinner - thanks for the link to that article. I am actually a big fan of that blog so had read the article.

Now completely off the China/yuan topic - today's entry on that blog:
Do sovereign debt ratios matter?
is an absolute cracker!
Almost worth printing out and framing (you can tell I am a really boring person LOL).

http://mpettis.com/2010/07/do-sovereign-debt-ratios-matter/

 

[sinner]

When I say it, you could probably dismiss me as a kook. But now a member of the Monetary Policy Committee saying the same thing: Chinese exports cannot stand a strong Yuan, and the PBoC doesn't even want a strong Yuan. They will drop the Yuan like a rock to save their exporters if they have to.

http://www.asahi.com/english/TKY201007200499.html

China to let renminbi fall if exports dropBEIJING--If China's export juggernaut falters, the country's central bank will allow its renminbi currency to fall against the U.S. dollar, thereby making Chinese goods cheaper overseas, a key monetary adviser here said.

Zhou Qiren, a member of the Monetary Policy Committee, an advisory body to the People's Bank of China, also told The Asahi Shimbun in an interview that Beijing's announcement June 19 that it would allow the renminbi to fluctuate more flexibly against the greenback starting June 21 should have been made much earlier.

Zhou said having a fixed exchange rate with the dollar over the past two years had been a burden for China.

The best way for China to reverse a sharp fall in exports would be to allow its currency to fall in value, too, he added.
...

Click link for more.

 

[Timmy]

When I say it, you could probably dismiss me as a kook.

If someone thinks the Yuan is going to depreciate (agst. the USD), I can see the arguments.

So, I don't think that view is kooky.

Now, no offense, but I only dismiss you as a kook when you insist the Yuan is going to halve in value within 12 months (11 months to go now). Anyway, we will see.

We made that bet about a month ago, probably time to check its progress, though there is a long time to go.

 

[sinner]

We made that bet about a month ago, probably time to check its progress, though there is a long time to go.

Have already posted one update, here is the next as you request

 

[Timmy]

Have already posted one update, here is the next as you request

Tks sinner.
Started at 6.8275 (for reference, save us looking it up each time), now at 6.7775.

Thats a long way from 13.6 odd, sinner (just winding you up .

 

[sinner]

I have been keeping close tabs on the China story over the last couple of months. However, recently been unable to share my thoughts with those at ASF due to priorities (personal health, income, savings & investment always take priority in hard times). Nonetheless, I thought todays CNY news would be a good addition since we looked a this number as it approached the 50 level.

Remember, as noted last time the number was released: 50 is the +/- level for this index, i.e. above 50 the manufacturing in China is growing below 50 the manufacturing in China is contracting.

Snippet from http://www.bloomberg.com/news/2010-...-economy-enters-slowdown-not-a-meltdown-.html

China’s manufacturing contracted for the first time in 16 months in July, a survey of purchasing executives showed.

A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics fell to 49.4 from 50.4 in June. Societe Generale SA cautioned last week that seasonal distortions raised the risk that July PMI readings could fall below 50.
...

“There is no need to panic,” said Qu Hongbin, a Hong Kong-based economist at HSBC, repeating his assessment of last month that China is having a “slowdown not a meltdown.”

A separate manufacturing index released yesterday by the statistics bureau and the Federation of Logistics and Purchasing slid to 51.2, the lowest level in 17 months.

HSBC’s manufacturing survey covers more than 400 companies and is weighted more toward smaller, privately owned business than the government’s PMI, according to the bank. The PMI released by the logistics federation and the Beijing-based National Bureau of Statistics covers more than 730 companies.

...

And some word on the CNY from PBoC on the wires today:
http://www.bloomberg.com/news/2010-...ing-band-appropriate-century-weekly-says.html

China’s current daily yuan-dollar trading band is “appropriate,” Hu Xiaolian, a deputy governor at the People’s Bank of China, said in an interview with Century Weekly magazine.

The trading band may be widened in the future, the magazine cited Hu as saying. There is not timetable for exchange rate reform, Hu was cited as saying.

The most recent leg down in the USDX coincided very well with the USD dropping against CNY. If the DX rallies from low 80s levels (closed 81ish last week) will the USDCNY follow?

 

[Timmy]

...By widening the trading band they are essentially providing room for the CNY to move a maximum of 2.5% in a straight line every week or a roughly 130% straight line every year.
... Good luck to them. Mish has always said the Chinese let their currency float it will go down not up. My father is a macroeconomics professor and the last paper he wrote on the issue was that the CNY is undervalued. I am probably siding with Mish on this one. Who wants to bet we come back in a year to find the USDCNY ~100% up from Mondays price?

Sinner, you seriously expecting the USD to appreciate by 100% against the CNY within the next year?

A 100% appreciation of the USD against the CNY would put the rate at 13.655 Yuan to the USD.

Why not?

...

Sinner, blowing the dust off this thread to wrap up the bet.

USD/CNY is now at about 6.4635 (give or take).
Agreed starting price was 6.8275 as per:

Monday's fix was at 6.8275 (from the link provided by satanoperca, above)
http://www.theaustralian.com.au/bus...urprises-markets/story-e6frg90x-1225882329000

Which equates to a CNY appreciation against the USD of about 5.33%, rather than a halving (depreciation) of the value of the CNY (to 13.655) that you and Mish were looking for.

Big difference.

Couple of charts of the CNY appreciation over the past 12 months (CNY appreciation is a fall in the USD/CNY quote for those unfamiliar with how the CNY is quoted in the market):

This chart at: http://www.forexpros.com/currencies/usd-cny-advanced-chart


This chart at: http://www.bloomberg.com/apps/quote?ticker=USDCNY:IND&n=y

 

[Dona Ferentes]

Is a large Chinese renminbi devaluation coming?​

• Andrew Swan
• 07 February 2024

What's striking about Asia at the moment is that for most of my career, it has been very synchronous with global growth. And in the last 12 to 24 months, we've seen very asynchronous growth in Asia, to the rest of the world and also within Asia itself. I think a lot of that has to do with the lingering effects of COVID and how that affected the world differently … and the inflation pressure that emerged in the West which didn't emerge in Asia.

Bright outlooks for South and North Asia​

[There are] three buckets in Asia at the moment. There are domestic demand economies, which are most of Southeast Asia or South Asia, including India, Indonesia, and the Philippines, and Thailand. The real story here is: growth is good. More domestic demand driven rates are fairly high in these markets because of what the Fed has been up to. And, really looking for a green light from the Fed to cut rates. So, what is already a good environment here can actually get better, and the growth cycle can elongate as rates come down.

The second bucket is more the global demand North Asian economies. And while demand is slowing down, there is this thing called AI that will supercharge the tech cycle, and Asia is a big beneficiary of that, particularly within semiconductors. But even further downstream, that's what's going to be interesting. This year, most of the AI euphoria has been in upstream, in semiconductors and the cloud. And now we're just on the cusp of seeing how that stimulates demand downstream.

So, you're going to see a lot more AI related functions in your phones and your iPads, in your laptops and in your PCs. And when you see this step changing technology, you tend to see a lot of innovation that drives demand after what has been a fairly weak demand environment for consumer electronic products. I think you're on the verge of a new cycle. The outlook for those economies and companies in the region which are exposed to the tech cycle, I think looks very good.

China’s economic model is dead​

Then there's the big bogey in the room being China. What has surprised us is how quickly China has moved into a deflationary environment and even idiosyncratic opportunities within the economy have been swamped by this deflationary force that's emerging.

Now, my view on China - it's at the end of the cycle. It's been led by investment and debt, and it has to change. The problem with change and structural changes - normally there's pain involved. And normally, policymakers will do nothing until they have to. I guess we're getting closer to that point where they're going to have to do something because the pressure on the domestic economy and the equity market is going to force their hand at some point.

What has been surprising is the resilience of the currency in the scheme of what's going on in deflationary environment. I do think the China has accumulated a lot of FX (foreign exchange) reserves offshore in the banking sector, not so much with the PBOC (People's Bank of China). But certainly the state-owned banks have held a lot of FX reserves, and if you look at FX reserves in the PBOC, they haven't really changed despite these deflationary forces. I think that's because these hidden reserves are being used to support the economy, but that only lasts so long. China is in this situation where they really need the currency to depreciate to make the economy more competitive.

Source: Yahoo Finance
They’re running very high real interest rates, which supports the economy the currency in the short term but puts pressure on the economy over the medium term.

China has two main options​

There are two options here for China, which are structural in nature:

• a one-off devaluation of the currency; a large devaluation of the currency. Now, certainly the policymakers are not suggesting anything like that. But the reality is, if you're going to devalue your currency, you do it from a position of strength, not weakness. There is very much school of thought that China may do a one-off devaluation to get ahead of these problems.
• the second option for China around structural reform is the savings rate is extremely high and consumption is very low. How do you break that? I think a lot of this has to do with the social safety net, which is broken. The hukou system needs to change. The comments coming out of Xi Jinping in recent weeks and months have started to include social welfare reform, which needs to be watched very closely. Anything that can give people confidence - that there's something there for a rainy day - will lead them to consume more. And that's really what China needs.

Overall, the market is getting a little bit too bearish about China. There are definitely some challenges, but there is still opportunity. When you get these periods of dramatic sell off, that's when policymakers normally are forced to respond. And we haven't seen it yet but we're getting closer.
The final point is the fiscal deficit in China contracted a lot last year because they [policymakers] felt the economy would recover quite strongly. There's definitely scope on the fiscal front for China to do more this year in the face of weakness.

Andrew Swan is Head of Asia ex-Japan Equities at Man GLG, a fund manager partner of GSFM, a Firstlinks sponsor. The information included in this article is provided for informational purposes only.

 

[qldfrog]

And there is another interesting point: what is the relevance of pegging the yan to the USD if the aim is to get rid of the USD for Chinese trades?