How much would you pay for a bundle of 100 1-renminbi bills?
Is the answer Rmb109? Read more
We’ve written a lot about capital outflows from China, what Beijing is doing to try to stem the flows, and how all this impacts the renminbi. Most of the time, the talk is about billions of dollars whizzing around the financial markets, one way or other. Yet, it seems that China’s capital outflow is accelerating even in its simplest form — yes, we mean bundles of cash hidden in suitcases.
It’s seriously old school, and seems almost quaint, but the sums are sizeable. Read more
There have been a few estimates of large scale capital flight out of China recently that don’t exactly tally with other signals. The strength of the yuan is among them, though it admittedly may be explained by myriad other factors.
Capital flight has largely been calculated by movements in China’s FX reserves, with reference to other variables such as the trade surplus, FDI and movements in exchange rates. Read more
Izzy wrote in May how China’s Rmb exodus is a huge (and still little-explored) story for the world economy, and it’s one that won’t be going away as China recorded a net capital account deficit in Q2. We’re wondering now how this might collide with risks to domestic liquidity — specifically, whether a combination of Rmb exodus and local banking problems might affect the People’s Bank of China’s ability to maintain financial stability?
A very brief recap on the Chinese foreign reserves-domestic liquidity nexus: Read more
Mitt Romney, aspiring US president-to-be, has notoriously declared that if he ever takes office he will immediately name China a “currency manipulator”.
This, of course, is an ironic turn of events, given that China stopped being an outright currency manipulator a while ago. Read more
Remember the days when Chinese banks used to routinely drain dollars from Chinese corporates? The days when the Chinese corporate sector was a net dollar seller?
Those days, it seems, may have very abruptly come to a halt. Read more
First, in a sign that Chinese woes are definitely rising and that authorities are now sufficiently concerned, we bring you news that China cut rates on Thursday (via Bloomberg):
China cut interest rates for the first time since 2008, stepping up efforts to combat a deepening economic slowdown as Europe’s worsening debt crisis threatens global growth. The one-year deposit rate will drop to 3.25 percent from 3.5 percent effective tomorrow, the People’s Bank of China said on its website today. The one-year lending rate will fall to 6.31 percent from 6.56 percent. Banks can offer a 20 percent discount to the benchmark lending rate, the PBOC said, widening from a previous 10 percent. Read more
FT Alphaville has been focusing on signs that China may be suffering a “capital outflow” problem.
We also think global markets may be under appreciating the problem. Read more
There is a huge developing story in China’s currency, the renminbi.
After years of structural under-valuation, things are changing. Read more
There seems to be something of a love-in going on between China and the IMF, though admittedly you have to wade through a weighty report to glimpse it.
Last weekend, finally, after years international pressure, China’s central bank said it was widening the renminbi’s daily trading band with the US dollar. Read more
That’s pronounced a bit like “Joe”, but with a softer ‘g’ sound. According to Standard Chartered you need to start practising – because People’s Bank of China governor Zhou Xiaochuan is “the world’s central banker”.
StanChart note that everyone already knows China has the world’s largest stock of M2 money. Read more
Does China’s decision to expand the allowed trading range for the yuan signal something significant for the country’s economy? Like, everything is roses?
We’re just asking because a Reuters analysis piece argues that this is the case: Read more
China intends to extend renminbi loans to other Brics nations, in another step towards the internationalisation of its currency, the FT reports. The China Development Bank will sign a memorandum of understanding in New Delhi with its Brazilian, Russian, Indian and South African counterparts on March 29, say people familiar with their talks. Under the agreement CDB, which lends mainly in dollars overseas, will make renminbi loans available, while the other Brics nations’ development banks will also extend loans denominated in their respective currencies. The initiative aims to boost trade between the five nations and promote use of the renminbi, rather than US dollar, for international trade and cross-border lending. Under 13 per cent of China’s Asia trade is transacted in renminbi, according to Helen Qiao, chief Asia economist for Morgan Stanley. HSBC estimates that the currency’s share of regional trade could swell to up to 50 per cent by 2015. Read more
George Osborne will sign a deal on Monday with Hong Kong aimed at helping turn the City into an offshore trading centre for the renminbi, the FT says, in what the UK chancellor sees as a vote of confidence in London. Mr Osborne believes the talks are proof that China sees London as a significant financial centre and gateway to the European single market, in spite of Britain’s isolation at a Brussels summit last month. The chancellor will agree with Norman Chan, chief executive of the Hong Kong Monetary Authority, technical measures to help London play an important role in increasing the renminbi’s standing as a big global currency. The two men will set up a forum investigating synergies between the UK and Hong Kong, including looking at clearing and settlement systems, market liquidity and development of new renminbi-denominated products. The deal will give weight to attempts by Mr Osborne to ensure that new European Union regulations do not stifle the City.
China’s foreign-exchange reserves dropped for the first time in more than a decade, Bloomberg reports, as foreign investment moderated, the trade surplus narrowed and Europe’s crisis spurred investors to sell emerging-market assets. The holdings, the world’s biggest, fell to $3.18tn at the end of December from $3.2tn at the end of September, data from the People’s Bank of China showed. The quarterly drop was the first since the second quarter of 1998, according to data compiled by Bloomberg. Meanwhile the WSJ says China may eventually invest more of its $3.2tn foreign-exchange reserves in stocks, enterprises and other assets as it looks for ways to boost returns on its reserves, according to an interview with Jiang Jianqing, chairman of China’s largest state-owned bank. Read more
Something is happening in China.
That’s the ominous title of an FX note posted by George Saravelos of Deutsche Bank on Friday morning. Read more
The EFSF roadshow is in Asia trying to drum up interest in the newly leveraged, newly insured, revamped fund. The Chinese are counting their chips and considering whether to double down on their European bet. (Mrs Wanatabe is also checking out the goods.)
But Europeans shouldn’t rely on China to come to their rescue, argues Julian Jessop, Capital Economics’ Chief Global Economist. In a sharp note published on Friday, Jessop offers a free reality check to anyone who thinks Europe can avoid solving its own problems. Read more
As FT Alphaville has written before, China effectively manages four different price paths for its currency, the renminbi.
Critical for its future flexibility, however, is the exchange between the so-called offshore CNH and the onshore CNY market. Read more
China engineered the biggest one-day appreciation of the renminbi in years on Monday, delivering a strong conciliatory message to American lawmakers who have been debating whether to punish Beijing for holding down the currency’s value, reports the FT. The renminbi rose 0.6 per cent against the dollar, the largest jump since July 2005 when China ended a formal peg and ushered in a tightly managed exchange rate float that, for most of the time, has seen the currency appreciate in steady but tiny increments.
The chairman of the US Federal Reserve has accused China of damaging prospects for a global economic recovery through its deliberate intervention in the currency market to hold down the value of the renminbi, the FT reports. Speaking just hours after the Chinese government sharply criticised a US congressional bill that would punish Beijing for alleged currency manipulation, Ben Bernanke told a congressional committee that an undervalued renminbi was preventing the rebalancing of global demand towards emerging market economies. The US Senate voted overwhelmingly on Monday to open debate on a bill, clearly aimed at China, that would impose tariffs on imports from countries with undervalued currencies. However on Tuesday, John Boehner, Republican Speaker of the House of Representatives, counselled caution over the bill, saying it went beyond the remit of Congress. Read more
China’s foreign ministry said it “adamantly opposes” a bill being pushed by the Senate to allow the United States to impose duties on countries that undervalue their currencies, Reuters reports. In a statement posted on China’s official government website on Tuesday, foreign ministry spokesman Ma Zhaoxu warned the United States not to “politicise” currency issues, and said the US was using currency as an excuse to adopt protectionist trade measures that violated global trading rules. ”By using the excuse of a so-called ‘currency imbalance’, this will escalate the exchange rate issue, adopting a protectionist measure that gravely violates WTO rules and seriously upsets Sino-US trade and economic relations,” he said. “China expresses its adamant opposition to this.” Read more
The US Senate is set to vote next week on legislation to punish China for manipulating its currency, as the renewed threat of global recession raises tension over exchange rates, reports the FT. Harry Reid, Democratic leader of the Senate, said this week he would invoke “cloture” – a procedure to prevent delay – for senators to vote on a bill that would require the US to use estimates of currency undervaluation when calculating anti-subsidy import tariffs. The bill is subject to amendment, meaning that it could end up with so many additions it becomes in effect impossible to move forward, but experts in trade policy said it had a good chance of passing. Read more
China’s yuan may become a fully convertible currency in five years, Li Daokui, an adviser to the People’s Bank of China, told a forum in Washington. Bloomberg reports Li said flexibility of the yuan will increase over coming years, and if reforms go on smoothly, “the renminbi will be fully convertible in five years”. However any appreciation would need to be gradual to avoid destabilising the U.S. economy, he said. Read more
China is for the first time to give formal backing to moves by British banks to turn the City of London into an offshore trading centre for the renminbi, UK government officials have told the FT. As George Osborne, the chancellor, prepares to hold talks in London with Wang Qishan, the Chinese vice-premier, on Thursday British officials say a joint statement by both countries backing the growth of renminbi trading in London is set to be the centrepiece of their meeting. Meanwhile Chinese officials told EU business executives that the yuan will achieve “full convertibility” by 2015, Bloomberg reports, according to EU Chamber of Commerce in China president Davide Cucino. Mr Cucino declined to identify the officials, saying only that the information was conveyed at a meeting, and said the move to convertibility would be taken in steps. Read more
China is for the first time to give formal backing to moves by British banks to turn the City of London into an offshore trading centre for the renminbi, UK government officials have told the Financial Times. As George Osborne, the chancellor, prepares to hold talks in London with Wang Qishan, the Chinese vice-premier, on Thursday British officials say a joint statement by both countries backing the growth of renminbi trading in London is set to be the centrepiece of their meeting. British banks and financial institutions have for some time been pressing for London to become an offshore trading centre for the Chinese cuurrency. Treasury officials say British banks and financial services institutions increasingly want to trade in the renminbi, seeing this as a rapidly growing market in foreign exchange and bond issuance. Read more
Lord Rothschild, chairman of London-listed RIT Capital Partners is working on a new private equity fund that will raise renminbi in China and invest it overseas, the FT says. The fund, J. Rothschild Creat Partners, aims to raise $750m by the end of the year from Chinese companies, and is one of the first such funds to gain regulatory approval. The capital markets have been opening up gradually to allow outbound investment but the process has been slow, starting with equities through a tightly regulated scheme and moving on to outbound private equity funds only this year. Beijing’s municipal government in March agreed to launch a fund with European private equity group A Capital Asia. Lord Rothschild’s group, a joint venture between RIT Capital, Creat Group, the Chinese investment conglomerate, and Quercus Associates, the investment advisory company. Foreign banks and funds including Blackstone, Goldman Sachs, Morgan Stanley and Carlyle have already set up renminbi-denominated private equity funds in China, although these focus mainly on domestic investments. Read more
The IMF says a substantial appreciation of the Chinese renminbi would have little effect on trade and growth in the rest of the world even if accompanied by other economic liberalisation, the FT reports. In its annual report on the Chinese economy, the IMF said a 20 per cent trade-weighted appreciation in the renminbi – a level similar to that demanded by many American lawmakers – would increase growth in the US economy by between 0.05 and 0.07 percentage points. However the report says the currency is substantially undervalued – a view rejected by China’s representative to the IMF, says the WSJ. The IMF also signalled concern about the Chinese property market, Reuters says, although it expects inflation to ease in the next few months. Read more
As concerns over the outlook for the Chinese economy intensify, currency traders have scaled back their bets that the renminbi will continue to strengthen against the dollar, writes the FT. Investors have also ramped up purchases of hedges against the risk that Beijing could devalue its currency were the economy to suffer an unexpectedly severe slowdown. The bearish market moves stand in contrast to the rosier consensus among economists that the renminbi will appreciate at an annual rate of 3 to 5 per cent over the coming years. Read more
Whatever happened to China’s amazing copper collateral shenanigans?
Goldman Sachs said last month that China’s central bank may have cracked-down on the scheme, which saw Chinese corporates use copper as collateral for new loans. Meanwhile, attention turned to other commodities that could potentially be used by China’s companies in a similar way. Read more
Older entries
1Time to take basic income seriously?
2We cannae give the economy no more, we're giv'n it all we've got Captain
3On what really is different this time around
4The case for official e-money +1
5The WMP whack, revisited
Show more6Hacking and property prices make the BoE big league
7Tax needn't be taxing. It can also be a Hungarian debt wheeze
8Mediocrity and the civil service in China
9"Companies should know who really owns them..."
10The central bank (communications) bubble
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