Posts tagged ‘Chinese yuan’

05/09/2015

What if the China Panic Is All Wrong? – China Real Time Report – WSJ

China’s stock-market routs and economic deceleration are widely cited as the major trigger for the latest round of global market volatility. But what if the dominant narrative about China—that the world’s No. 2 economy is on the verge of falling off a cliff—is wrong?

It would mean the global market turmoil hitting equities, commodities and currencies is an overreaction. “We may have seen overshooting,” said Hung Tran, executive managing director of global capital markets at the Institute of International Finance, an industry group representing around 500 of the world’s largest banks, funds and other financial institutions. Even the head of the International Monetary Fund indicated as much earlier this week.

One of the chief problems is that it’s difficult to gauge China’s black-box economy. The country’s true growth is a guessing game given a number of statistical factors. That’s why growth forecasts show a range spanning several percentage points. Lombard Street Research, for example, estimates the economy will only expand by 3.7% this year, nearly half Beijing’s official growth forecast. Even if China’s economy is healthier than many now fear, uncertainty is oxygen for market volatility.

More clarity from Beijing about growth prospects and crisis-management plans would likely prove fruitful. That’s why the U.S. plans to press Chinese officials for greater details on their policy plans at a meeting of finance ministers and central bankers from the Group of 20 largest economies late this week. Here are some of the arguments that might moderate market fears:

• China’s stock market valuation is a bad indicator of Chinese growth. “Investors should not get carried away by the collapse of the Shanghai Composite Index,” warns Melanie Debono from Capital Economics in note to clients, “not least because its performance often bears little relation to that of the economy, primarily due to wild swings in its valuation.” The market run-up in advance of the selloff was out of step with reality, says Nick Lardy, a China expert at the Peterson Institute for International Economics. That’s why he says there’s likely more to come in the Chinese market correction. Even after the rout, “The market was still trading at 39 times earnings. Give me a break, it’s still too high.”

• The devaluation of the renminbi likely isn’t Beijing scrambling to save the economy through competitive devaluation. Beijing’s depreciation was likely more about addressing a key concern for the International Monetary Fund as it considers whether to include the Chinese yuan in its basket of currencies that comprise its lending reserves than it was about reviving economic growth by juicing exports. On Aug. 11, Beijing changed the way it values the yuan, allowing markets to play a greater role in the exchange rate. Market pressure has long been for depreciation, so allowing the currency to be more market-determined would, in the near-term, naturally see the yuan move lower. Against a basket of global currencies, the yuan has appreciated over the last year by nearly 15%, accounting for inflation. That’s despite Beijing intervening for months to prevent the yuan from losing value. “So the fact that the yuan came down 3% to 4% is not going to make much difference,” said Ted Truman, a former top international finance official at the U.S. Treasury and the Federal Reserve.

GDP growth may not be nearly as bad as suspected. Economists such as Clare Howarth at Oxford Economics say that beyond official industrial production figures, data on car and cell phones sales are jacking up the risk that China’s growth stalls. But “critics are really overlooking the fact that the growth model has changed in China,” Lardy says. “The service sector is now the driver of growth. So the fact that industrial growth has slowed down quite a bit does not mean, as it would have meant 10 years ago, that the economy is falling off a cliff.” Based on electricity consumption, “I just don’t see any signs that the Chinese economy is experiencing a hard landing,” says Torsten Sløk, Deutsche Bank’s chief international economist. Joe Hockey, treasurer for an economy that is intimately tied to China, Australia, says market reactions have been overblown. “We’re confident about our understanding of the Chinese economy and we see over time huge opportunities for growth,” Mr. Hockey told the Journal.

• Rather than regressing to policies of old, China’s government has actually been showing signs of moving ahead with market reforms.

Source: What if the China Panic Is All Wrong? – China Real Time Report – WSJ

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11/08/2015

China Shakes Markets with Yuan Move – China Real Time Report – WSJ

China devalued the yuan by nearly 2% on Tuesday in a surprise move that shook markets around the world and appeared to be a response to sharply weaker exports and plummeting factory prices in a softening economy. The central bank described its action as a new way of setting the daily parity or reference rate – a rate it sets for the currency against the dollar –  to better reflect market rates.  (The markets get a chance to trade the currency around that rate, but not by much. The yuan can go up or down only 2% from that crucial central rate.)

So far this year, the parity rate has hardly budged against the dollar even though the latter has been rising steadily against other currencies. That has made China’s exports more expensive in many markets just as the world’s second largest economy is slowing.  The People’s Bank of China says it will now pay more attention to the market levels when it sets its parity rate. It also called the move a “one-time fix.”

Economists are hotly debating the significance of the move, in part because it seems to be speaking to many different audiences. It will help the struggling export sector, which has stalled amid weak global demand. Exports in July, for example, sank more than 8% and they were down nearly 1% for the first seven months of the year.

At the same time, it was essential for the People’s Bank of China not to alarm domestic and foreign investors to avoid triggering a wave of capital outflows. Investors tend to dump a weakening currency and move their assets into other currencies. Thus, the PBOC said the move was a one-time reform effort to bring the yuan more in line with the markets.

Finally, the central bank may also have had the International Monetary Fund in its sights. The yuan is up for possible inclusion in international agency’s Special Drawing Rights, a basket of currencies that serves as a global reserve. Too big a move might have damaged Beijing’s case that the yuan is a suitable candidate for addition to that basket of currencies, analysts said.

via Economists React: China Shakes Markets with Yuan Move – China Real Time Report – WSJ.

16/12/2014

China jails businesswoman in railway graft case for 20 years | Reuters

A court in China sentenced a well-known businesswoman to 20 years in jail for corruption on Tuesday, saying the woman with ties to a disgraced former railways minister was guilty of bribery and illegally running a business.

Ding Yuxin, also known as Ding Shumiao, helped 23 businesses win railway construction contracts and funnelled 49 million yuan (£5 million) worth of kickbacks to former railways minister Liu Zhijun, state media has previously reported.

She also “offered sexual favours to Liu by arranging an unidentified number of women for him”, the official China Daily reported last year.

In a brief statement on its microblog, a Beijing court said the evidence in the case against her was clear, ordering she also pay a fine of 2.5 billion yuan and have assets worth 20 million yuan confiscated.

It gave no other details.

via China jails businesswoman in railway graft case for 20 years | Reuters.

10/12/2014

China releases one of its longest-serving political prisoners, relative says | Reuters

China has freed one of its longest-serving political prisoners, the ethnic Mongol dissident Hada, who has spent much of the last two decades behind bars, his uncle said on Tuesday.

Beijing fears ethnic unrest in strategic border areas and keeps a tight rein on Inner Mongolia, just as it does on Tibet and Xinjiang in the far west, even though the region is supposed to have a large measure of autonomy.

“He’s not in good health,” the dissident’s uncle, Haschuluu, told Reuters, adding that Hada’s younger brother had told him of the release, which took place on Tuesday morning in the Inner Mongolian capital of Hohhot. He declined to comment further.

Many Mongols in China go by just one name.

Hada was tried behind closed doors in 1996 and jailed for 15 years for separatism, spying and supporting the Southern Mongolian Democratic Alliance, which sought greater rights for China’s ethnic Mongols. He says the charges were trumped up.

After being released in December 2010, he had to serve a separate sentence of four years of “deprivation of political rights”, mostly in an illegal detention center in the northern region of Inner Mongolia, his family says.

via China releases one of its longest-serving political prisoners, relative says | Reuters.

27/11/2014

China takes ‘zero tolerance’ approach to regional polluters: Cabinet | Reuters

China will take a “zero tolerance” approach to a wide range of environmental violations and has promised stronger action against regional governments that protect polluters or hinder inspections, according to a Cabinet document.

A man wearing a face mask stands on a bridge in front of the financial district of Pudong on a hazy day, in Shanghai November 17, 2014. REUTERS/Aly Song

Authorities across China have been ordered to take part in a comprehensive inspection program to be completed by the end of 2015, said the policy document that was released on the official government website late on Wednesday.

The program’s findings will be released publicly under a policy of enhanced transparency and accountability, it said, and any regional regulations that hinder enforcement of national environmental legislation must be annulled by June 2015.

The state of China’s air, soil and rivers has emerged as one of the ruling Communist Party’s biggest challenges, with an increasingly prosperous public unwilling to accept the environmental costs of rapid economic growth.

China declared a “war on pollution” this year and passed long-awaited amendments to its 1989 Environmental Protection Law, giving authorities added powers to monitor, fine and even imprison repeat offenders.

On Wednesday, the cabinet also approved draft amendments to China’s air pollution law that include unlimited daily fines if violators do not rectify problems, the China Daily newspaper reported. Polluters currently pay a one-off fine of up to 200,000 yuan ($32,595).

Enforcement remains one of the government’s main concerns, with the Ministry of Environmental Protection complaining last month that some regions preferred “form over substance” when it came to implementing new guidelines.

The ministry also criticized regional governments that failed to comply fully with industrial restrictions during this month’s Asia-Pacific Economic Cooperation summit in Beijing.

(1 US dollar = 6.1360 Chinese yuan)

via China takes ‘zero tolerance’ approach to regional polluters: Cabinet | Reuters.

24/11/2014

Property, manufacturing woes help trim China’s shadow banking | Reuters

A bid by China to rein in its “shadow banking” activity is producing results, thanks to slowing economic growth and tighter regulation.

One Chinese yuan coins are seen in this photo illustration taken in Shanghai April 7, 2013. REUTERS/Carlos Barria

But some success for a policy drive to curb risky lending is not all good news for Beijing, as smaller companies may face even bigger struggles to find funding. A cut in interest rates, announced by Beijing on Friday, is unlikely to help them much.

Shadow banking includes off-balance-sheet forms of bank finance plus lending by non-traditional institutions, all of which is less regulated than formal lending and thus considered riskier.

At the end of 2013, China had the world’s third-largest shadow banking sector, according to the Financial Stability Board, a task force set up by the G20 economies. It estimated that Chinese assets of “other financial intermediaries” than traditional ones were then just under $3 trillion.

In the three months ended Sept. 30, the shadow banking portion of what China calls total social financing – a broad measure of liquidity in the economy – contracted for the first time on a quarterly basis since the 2008/09 financial crisis.

via Property, manufacturing woes help trim China’s shadow banking | Reuters.

11/09/2014

Despite Sluggish Economy, China Has Yet Again More Millionaires – China Real Time Report – WSJ

Perhaps the Chinese economy is doing OK after all: The country’s ranks of the rich are growing slightly faster, according to a new report.

By slightly, we mean very: one percentage point.

Still, those who track the rich point to it as an optimistic signal. At the end of 2013, there were 1,090,000 people with a net worth of more than 10 million yuan ($1.6 million) and 67,000 with more than 100 million yuan, according to the Hurun Wealth Report 2014. That’s an increase of 4% for both categories. In the previous year, the growth rate was 3% and 2%, respectively, which represented the lowest increase over the six years Hurun has compiled the report.

Hurun, which also puts together an annual list of the richest people in China, said it came up with its headcount by two methods. First, it looked at the sales of high-end real estate and cars, as well as income tax returns and other data related to wealthy individuals. Then, it rounded out its headcount by taking into account macroeconomic data like gross domestic product growth and gross national product.

So who are the new rich? Mostly private business owners, said Hurun, who make up 55% of all millionaires (up from 50% last year). The report said the wealthy typically own a personal residence worth at least 2 million yuan, multiple cars worth more than 200,000 yuan as well as 1.7 million yuan in “investable assets.”

via Despite Sluggish Economy, China Has Yet Again More Millionaires – China Real Time Report – WSJ.

02/05/2014

Maybe China’s Currency Isn’t Undervalued After All – China Real Time Report – WSJ

Note to rest of the world: Stop bugging China on undervaluation of its currency.

The World Bank’s re-estimation of global pricing is leading to a second day of questioning of economic verities. Yesterday, a number of publications used the new numbers to pronounce that the U.S. would next year lose its century-long ranking as the world’s number one economy. (China Real Time came to a more nuanced—and skeptical—conclusion.)

Today, two economists at the Peterson Institute for International Economics, perhaps the world’s top econ think tank, used the numbers to conclude that the Chinese yuan was no longer undervalued, as it has been for decades.

“This estimate is of potential historic significance,” conclude Martin Kessler and Arvind Subramanian. “The end of Chinese mercantilism—and relief for the rest of the world—may be in sight,” they write in a Peterson blog post.

To review, the World Bank re-estimated the size of different economies using a calculation known as purchasing power parity (PPP), which tries to estimate relative wealth by looking at differing prices in different countries for the same goods or services. Such comparisons usually show that developing countries aren’t as poor as they seem.  For instance: A haircut in Beijing costs far less than a haircut in Boston, which means the wealth of a Chinese person with a full head of hair –- let’s call him Mr. Wang—is greater than usually understood.

Cheaper in China: haircuts. Not cheaper: iPhones, BMWs and other imports. Reuters

But Mr. Wang doesn’t buy things in PPP; he buys them using actual currency. When he leaves the hair salon and buys an import, say a U.S. iPhone or a German car, his yuan are converted into dollars or euros at the current exchange rate. Given that Chinese earn far less money than Americans or Germans on average, exchange rate comparisons accentuate the gap between developing and developed nations. Most comparisons of international power are done using the prevailing exchange rate, not PPP.

Now, back to the value of the yuan.

Messrs. Kessler and Subramanian use the new PPP calculations to estimate that between 2011 and March 2014 China’s per-capita GDP grew about 13 percentage points faster than the U.S., which they say should translate into a currency appreciation of around 3.2%. Since the actual appreciation was 7%, that suggests the yuan appreciated too rapidly during that period and made up for some of the time when the yuan didn’t strengthen rapidly enough.  “The renminbi in 2014 is thus fairly valued,” they conclude.

Any estimate of a currency’s valuation is a black art. Different economists use different methods and come up with different conclusions, especially if there isn’t an obvious undervaluation or overvaluation.

It’s hardly surprising that many countries accuse the others of deliberately undervaluing their currencies, and use estimates of currency valuation to make their point. Nearly every government has the same strategy for growth — export more — and a cheap currency helps exporters.

via Maybe China’s Currency Isn’t Undervalued After All – China Real Time Report – WSJ.

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31/03/2014

China’s Huawei books quickest profit growth in four years on smartphone demand | Reuters

China’s Huawei Technologies Ltd, the world’s No.2 telecommunications equipment maker, reported its fastest profit growth in four years as expansion in enterprise and consumer revenue far exceeded growth in its network building division.

A man looks at a Huawei mobile phone as he shops at an electronic market in Shanghai January 22, 2013. REUTERS/Carlos Barria

The unlisted company has benefited from companies investing heavily in cloud and mobile computing, while it has shipped so many mobile handsets that it became the world’s third-biggest smartphone manufacturer last year.

Shenzhen-based Huawei is now looking for revenue from Chinese mobile phone operators switching to fourth-generation networks to cushion the impact of a slowdown in network spending abroad.

In 2013, net profit rose 34.4 percent to 21 billion yuan ($3.38 billion), the company said in a statement on Monday.

Operating profit was 29.1 billion yuan, compared with the company’s forecast range of 28.6 billion yuan to 29.4 billion yuan.

via China’s Huawei books quickest profit growth in four years on smartphone demand | Reuters.

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