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Think tank wants RMB devaluation

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Mr Totomolo

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Joined: June 21, 2008
Posts: 1512
Location: Shanghai & Taipei
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Posted: Dec 03, 2008 - 03:07 PM
Post subject: Think tank wants RMB devaluation

Maybe some good news for US$ income people (sorry Euro is doomed against US$ at this moment)

http://www.china.org.cn/business/news/2008-12/03/content_16891178.htm

Think tank wants RMB devaluation

China needs to depreciate the renminbi against the US dollar to cushion the greenback's sharp appreciation versus other major currencies over the past months, a researcher from a top government think tank said on Tuesday.

"As part of the macro-control measures, adjustment of the renminbi's exchange rate is reasonable and necessary," Pei Changhong, director of the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences, said at a press conference held in Beijing.

Think tank wants RMB devaluation

"If the dollar continues to rise again the euro, we will have to further adjust the renminbi," said Pei, adding a proper exchange rate level should support the nation's export sector.

Pei's comments came on the heels of the renminbi's largest one-day fall against the dollar on Monday.

Some analysts say the fall is a sign that the government may have decided to use depreciation to bolster the struggling export sector and alleviate unemployment.

The nation's economy has been losing steam in the year as the worsening world financial situation is poised to drag most of the major developed economies into recession.

The export sector is most severely impacted, largely due to the appreciation of the Chinese currency and shrinking overseas demand.

The renminbi has gained about 7 percent against the US dollar in the first half, amounting to about 20 percent rise of the yuan since China decided to scrap its peg to the greenback in 2005.

Over the past two months, the dollar has gained more than 20 percent against the euro, leading to a de facto appreciation of the yuan, which remained largely stable against the dollar.

"An adjustment (of the yuan) could help balance its exchange rate with the euro," said Pei.

The European Union is now China's largest export destination, a market local exporters would be eager to defend given that US consumers have already started to cut spending.

Exporters hard hit

Official statistics show the nation's total export growth has declined to 19.2 percent in October from a year earlier.

However, analysts say the real slowdown could be more severe, as the renminbi's appreciation tends to exaggerate the export figures, which are based on dollar value.

"The real export growth is only about 8 percent to 9 percent," said Pei.

Over the past months, the government has introduced a host of measures including raising the rebate of export taxes as well as scrapping the export restrictions on some products.

The nation will further encourage the development of its export sector and strive for a stable export growth, Xie Xuren, the finance minister, wrote in an article published in Qiushi, a Chinese magazine.

The export-oriented manufacturing sector, despite being criticized by some as low value-added, is important for the nation to provide jobs for its massive pool of migrant workers.

Over the past months, there are increasing reports about factory closures in the coastal regions, which have forced the migrant workers to head home to the countryside for a living, if possible.

Although the benefits of a depreciation of the renminbi appear to be obvious, some also cautioned about its risk.

"The cost of the move can outweigh its benefit," said Guo Tianyong, an economist with the Central University of Finance Economics.

"It's doubtful whether a small depreciation could attract more orders. Meanwhile, a sustained depreciation could trigger an outflow of capital, which also harms the nation's aim to increase investment."

Moreover, some also think such a move could trigger a political backlash from the nation's trade partners.

US officials are likely to urge China to continue to allow the renminbi to rise in value against the dollar over the weekend, when the US Secretary of the Treasury Henry Paulson will meet with top Chinese officials during the two-day US and China Strategic Economic Dialogue, according to the Associated Press.

kulturschok

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Joined: June 12, 2008
Posts: 318

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Posted: Dec 03, 2008 - 06:24 PM

I could wait until I have read the article before I ask, but i am too impatient - does this mean I should wait before converting any GBP Sterling in to RMB?

*shi!te at economics*

Mr Totomolo

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Joined: June 21, 2008
Posts: 1512
Location: Shanghai & Taipei
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Posted: Dec 03, 2008 - 09:10 PM

Honestly... I dont know.
But I think , even if the RMB is devalued, it will not help for GBP , because the GBP is now very closely related to the Euro fate.

I think the chinese government will really devalue the RMB to around 7 for one US$, but as long as the US$ is strong compared to the Euro, it won't change for the GBP too

greenmark

Rocker

Joined: July 28, 2005
Posts: 612
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Posted: Dec 07, 2008 - 11:22 AM

Just read the following. Bad news for those of us paid in RMB:

http://www.ft.com/cms/s/0/01d2f94e-c305-11dd-a5ae-000077b07658.html?nc lick_check=1

Long View: Eyes on the renminbi

By John Authers

Published: December 5 2008 21:16 | Last updated: December 5 2008 21:16

In a year when we have all grown used to extreme numbers, this week was book-ended by two shocking figures. Only one seems shocking at first to those outside the market.

The news came on Friday that more than half a million jobs were lost in the US last month, the worst month in more than a quarter of a century.

The week began with the news that the Chinese renminbi had depreciated by 0.73 per cent on Monday. This appears trivial by comparison, but generated almost as much concern as the news on US jobs later in the week. Why?

The renminbi is a tightly managed currency, and this was by far its greatest daily move since the Chinese authorities opted to allow the renminbi to start to float in 2005.

Moreover, it was in a new direction. For three years, the renminbi had steadily appreciated against the dollar, by a cumulative total of 20 per cent. Then, in mid-July, its gains against the dollar came to an abrupt halt, and it even started to depreciate against the Japanese yen. It had kept rising against Asian currencies and the euro.

The renminbi’s drop on Monday brought it to its lowest against the dollar since June, but still 20 per cent stronger than in 2005.

Professional investors were so worried (as private investors also should be) by this because the renminbi is so tightly controlled. A sudden, sharp move only happens if the government wants it to. Thus, it was treated as a signal of something.

Further, China’s economy has been for years the biggest contributor to global growth, and it has become a critical lender to the US, by buying US securities. Anything that affects this relationship also affects the greatest of the so-called global imbalances that led to the crisis.

Hopes that China had “decoupled” from the west, and could grow irrespective of events elsewhere, have been jettisoned – see the chart, left, which shows surveys of purchasing managers in the US, the eurozone and China are almost identical. Everyone now should worry about China’s economy.

Analysts do not trust official data, and are alarmed by data on activity. For example, energy output fell in October, for the first time in seven years. Thus official actions grow more important. Following a big fiscal stimulus and an interest rate cut of more than 1 per cent by the People’s Bank of China, this was the third time in weeks that Chinese officials showed they believe they have a problem.

When a currency is allowed to fall, it protects local industries (by making exports cheaper), while importing inflation by making imports more expensive. So a broader devaluation would show deep official concern for the state of China’s economy, and also imply that any recovery would be at the expense of other economies.

Reactions among the growing legion of financial sinologists vary according to geography. Those based in Hong Kong, close to the region of China where exporters have suffered most in recent months, tend to see a depreciation as a necessary response. For them, it is not surprising if the authorities decide currency appreciation has gone far enough for now.

That seems to be the reasoning by the market itself, which is now pricing in a fall of more than 5 per cent for the renminbi over the next six months.

Currency strategists view forex markets as a complex game. Morgan Stanley’s Stephen Jen, who now believes the renminbi will depreciate by between 5 and 10 per cent, points out that it is supposed to be a flexible currency, and so it should be allowed to move in the direction it wants to move. He also argues that many traders regard the renminbi as a “one-way bet” (to go up forever), and that this is a good time to combat that reasoning, and that other Asian economies have become more competitive thanks to devaluations.

Meanwhile, Americans tend to see anything China does in terms of realpolitik. Monday’s drop came ahead of the regular strategic economic dialogue between senior officials from the two countries, and brought the renminbi to its level of the previous dialogue, in June.

So the theory is abroad that this was a “warning shot” of a potential trade war. Adding fuel to this theory are the facts that the largely unwelcome rise of the dollar began when the renminbi stopped rising against the dollar in July, and that Barack Obama is on the record calling for action against China as a currency manipulator.

There are arguments against this. A sharp devaluation of the renminbi would do further damage to the US market for Chinese exports, and might signal a round of “competitive devaluations” as more countries try to boost their economies by cheapening their currencies. That is in nobody’s interests.

Another theory, put out by forex strategists at Deutsche Bank, that this was a “trial balloon” as the Chinese decide what to do, therefore seems plausible.

What is undeniable, for investors, is that some assumptions, such as that the Chinese economy can grow independently forever, must be jettisoned. And with the world’s economy so interconnected, we must all pay attention to even the smallest moves.

leidelaohu

Board Lord

Joined: June 11, 2007
Posts: 5751

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Posted: Dec 07, 2008 - 12:27 PM
Post subject: Re: Think tank wants RMB devaluation

Mr Totomolo wrote:

China needs to depreciate the renminbi against the US dollar to cushion the greenback's sharp appreciation versus other major currencies over the past months, a researcher from a top government think tank said on Tuesday.

Fuck that shit. It's 40% undervalued already. China cheats like a card shark at trade anyhow. You want a trade war ? China hasn't won a war since the Tang dynasty. Bring it on, baby !