Nomura’s Richard Koo — he of ‘balance sheet recession’ fame — has been inspired.
He’s spent a week with Chi Hung Kwan, of the Nomura Institute of Capital Markets Research and an all-around China expert, and come back with the discovery that the “conventional wisdom on [the] Chinese economy has begun to collapse.” Read more
Surely it was hard enough being a Chinese man without being held responsible for a global currency war.
This is, roughly, the usual US-China currency war logic: (1) Chinese officials intervene aggressively in the currency market, (2) foreign exchange reserves rise, (3) the real exchange rate falls, (4) a current account surplus emerges. Read more
Tim Geithner, the Treasury secretary, used a speech on Wednesday to insist that China must reduce unfair subsidies, stop the theft of intellectual property, liberalise investment — and let its currency appreciate, the FT says. The wider focus chimes with indications from Republican politicians that they will not not push pending legislation designed to punish China for undervaluing the renminbi. Instead, look for a more comprehensive China trade bill to appear in Congress soon, Reuters reports, noting that attacks focused on the Chinese currency are likely to remain subdued so long as the US economy keeps showing modest improvement. Read more
China has started trading in its own currency in the US for the first time, the WSJ reports, in a significant step for the PRC’s plan to foster global trading in its renminbi. The state-controlled Bank of China is letting clients trade the currency in the US, in efforts to become what one BoC executive described as the “renminbi clearing centre” of America and expand its growing offshore market which began last year in Hong Kong. Read more
There’s been a bit of (somewhat post hoc?) concern in recent days over the cash crunch in Chinese interbank markets.
The one-week Shanghai Interbank Offered Rate went up, up… and then came down. Same stuff in the seven-day repo rate, which probably tells you more as it’s a more developed market than Shibor. That follows the Christmas Day interest rate hike, and could be the market reacting to heavier tightening ahead by the People’s Bank of China in 2011. Read more
Welcome to the redback, the hongbi, or just the dim sum market, says the FT. So new is the trade in offshore Chinese currency bonds that it has yet to gain a proper name. For want of anything else, it is often dubbed the “dim sum” market in culinary recognition of its Hong Kong home base. But it is rising fast, with Caterpillar and McDonald’s issuing bonds denominated in renminbi in 2010. Renminbi deposits in Hong Kong banks surged 45 per cent in October to Rmb217bn, another reflection of the use of the Chinese currency in trade. While Chinese regulators could easily end their moves toward liberalisation, the day is not far off when 20 to 30 per cent of Chinese imports are conducted in its own currency, with huge implications for the dollar, the WSJ reports. Read more
Russia’s second-biggest bank will become the first emerging market issuer outside China of “dim sum” bonds denominated in renminbi, in a sign of growing Chinese presence in financial markets, the FT reports. VTB Bank plans to issue Rmb1bn ($150m) in three-year bonds, expected to yield about 3.125%. Only two foreign companies, McDonald’s in August and Caterpillar last month, have issued “dim sum” bonds, which are issued in Hong Kong. The recent issues follow Beijing’s decision to loosen regulations earlier this year. Bloomberg quotes an emerging markets strategist saying the VTB deal proves the point that “key emerging-market currencies are becoming references of value”. Meanwhile, reports the WSJ, Moscow’s Micex exchange is set for next week’s launch of preliminary trade for the yuan-ruble pair. Read more
China, of course. Read more
Newswires are reporting that China’s finance ministry failed to attract enough demand for a bill sale on Friday — the first time this has happened since June.
This is important since the failure could indicate a shortage of cash at banks following the lifting of reserve requirements twice in this month. Read more
This is the benchmark Chinese seven-day repo market rate (chart via Reuters):
If you’re a China-based bank you might have received this in your inbox on Thursday — from the Hong Kong Monetary Authority (HKMA):
——– Read more
There’s a bit of an interesting situation developing in Chinese public finance.
According to analysts at Standard Chartered, based on current trends, the government’s revenues could fall short of expenditures by only CNY300-500bn, rather than the CNY1,050bn expected in the budgeted deficit. Read more
From Reuters on Thursday:
Yuan ends up after fixing error raises appreciation view
* China FX system inputs incorrect mid-point before mkt open
* Corrected to 6.6695 from 6.6495 in several minutes
* Pause in yuan appreciation expected over next few days
* Yuan seen resuming rise to around 6.6 by late Nov
* Yuan at 6.6504 vs dollar, up 2.64 pct since depegging Read more
Reuters revealed on Monday that China’s central bank had unexpectedly raised the reserve requirements for six large commercial banks by 50 basis points. Citing unidentified sources, the newswire said the temporary move was designed to drain cash from the economy without over-tightening monetary conditions. The increase takes the required reserve ratio to 17.5 per cent and should be in place for about two months, the agency added. The People’s Bank of China, however, has declined to comment. According to Bloomberg, the increase may fuel concern that the Chinese economy risks slowing excessively as the government cools the real- estate market to limit asset bubbles. Read more
Essential to global co-operation, says the US Treasury Secretary Timothy Geithner. Nothing short of a ‘disaster for the world’, says the Chinese premier Wen Jiabao. In any event, the revaluation of the renminbi is provoking an ever-fiercer war of words. Mr Geithner fulminated against ‘competitive non-appreciation’ ahead of annual IMF and World Bank meetings on Wednesday, the NYT reports, with Mr Wen countering that the US and Europe should not work ‘to pressurise us on the renminbi rate’ at a meeting in Brussels, the FT adds. Other Asian central banks, notably in Thailand and India, are stuck in the middle — and are increasing talk of currency intervention, the FT also notes. In the meantime, don’t miss Beijing-based economist Michael Pettis’ latest take on why he thinks the renminbi will appreciate rapidly over the next year. Read more
Democratic leaders in the House of Representatives will move ahead with a bill allowing the US to retaliate against China for manipulating its currency, a significant escalation of the dispute between Washington and Beijing, the FT reports. While Rep. Sander Levin said the bill was compatible with WTO law, its call for currency valuation to be taken into account on imposing duties is largely untested as a matter of the international laws on trade. The Chinese premier Wen Jiabao has already attacked the proposed legislation, arguing that the conditions for major appreciation of the renminbi currently do not exist, according to Reuters. Read more
Now here’s a renminbi mystery.
Not only did the People’s Bank of China fix the USDCNY cross-rate lower for the eighth time running on Monday at 6.7110, versus Friday’s 6.7172 — the longest run of low fixes since October 2007. But the cross-rate actually traded below the fix itself, hitting a low of 6.7095: Read more
FT Alphaville reports that two global titans — one of fast food and one of the world economy — have teamed up in the debt market. McDonalds became the first foreign corporate to issue a renminbi-denominated bond after China relaxed restrictions on foreign firms issuing RMB bonds back in February. Meanwhile, Beyond Brics reports on the first cross-border trade credit agreement to be denominated in renminbi between ICBC and Indonesia’s Huawei, and asks did the RMB just go global? Read more
Two global titans — one of fast food and one of the world economy — have teamed up in the debt market. For, McDonalds has become the first foreign corporate to issue a renminbi-denominated bond, reports FT Alphaville. Meanwhile, Beyond Brics reports on the first cross-border treade credit between ICBC and Indonesia’s Huawei to be denominated in yuan, and asks did the RMB just go global? Read more
Call the global ETF industry what you want, but you can’t deny that they’re not quick to react to changing investor demands.
Not even a week since news broke that China would consider some flexibility in its exchange rate, and ETF Securities has already announced “emerging market Currency ETCs”. What’s that? See FT Alphaville for more. Read more
China’s central bank raised the daily reference rate for the renminbi against the dollar on Tuesday, indicating that the currency may gently appreciate further in the first week of its new ‘flexibility’ regime, the FT reports. However, the renminbi fell against the dollar in the spot market, a warning to investors who viewed it as a one-way bet under the new regime. State-owned backs heavily bought dollars on Tuesday, traders told Reuters, but it was not clear if the strategy indicated central bank intervention. Read more
So China moves to flexibility in the renminbi, presenting a token diplomatic gesture before G20 talks, but ultimately not changing very much economically. Right? Well, sort of. The situation is more complex than that, and FT Alphaville has the breakdown. Read more
The renminbi rose to a 21-month high against the dollar on Monday, Reuters reports, as traders reacted to the People’s Bank of China’s weekend announcement that the currency’s peg to the dollar will effectively be dropped. The Bank’s decision to leave the exchange rate unchanged from Friday to Monday nevertheless took the market by surprise, the WSJ says. The renminbi’s new regime is certainly a deft political move by the Chinese authorities ahead of the latest G20 talks, the FT argues, but the economic implications of the shift remain up for debate. FT Alphaville rounds up reactions from media commentators and currency analysts. Read more
If most of the media agrees that China’s decision to enhance the yuan’s flexibility was a step in the right direction, many currency analysts are voicing some of their own reservations — not least in terms of the future of the PRC’s FX reserves, writes FT Alphaville. Read more
Some critics are doubtful about the significance of Beijing’s moves on the exchange rate of its currency — but the volumes devoted to China’s weekend statement on currency flexibility on Monday morning would suggest otherwise, FT Alphaville writes. Read more
The US will continue nudging China at top-level talks in Beijing next week to let its currency appreciate but won’t push hard on the issue, according to Reuters, which cited senior Treasury officials. The report noted that one factor complicating efforts to push China toward resuming the renminbi’s appreciation is the recent steady decline in the euro’s value. Read more
Bank of Tokyo-Mitsubishi UFJ’s China unit said Monday it plans to issue 1bn yuan worth of bonds on China’s interbank bond market Thursday, the first yuan-denominated bond sale in mainland China by a foreign commercial bank, the WSJ reported. Bank of Tokyo-Mitsubishi UFJ (China) Ltd. said in a statement the two-year floating-rate bonds will use the three-month Shanghai interbank offered rate as the reference rate. Bank of China is the main underwriter of the deal. Read more
Hu Jintao has maintained the tricky balance of asserting Beijing’s right to set exchange rate policy while avoiding open conflict with the US, the FT says. “China will firmly stick to a path of reforming the yuan’s exchange rate formation mechanism,” the Chinese president said at the nuclear security summit in Washington, according to China’s official Xinhua news agency. But he insisted that a move by Beijing “won’t be advanced by any foreign pressure.” Read more
Twelve out of nineteen respondents to a Bloomberg survey on the appreciation of China’s currency believe that the country’s central bank will introduce a free-float by the end of this quarter. Five predicted a September roll-out, while the remaining respondents foresee action by the year’s end at most. Analysts affirmed that China remains wary of a one-off revaluation lest it appear to succumb to foreign pressure. Read more
President Barack Obama on Monday pushed President Hu Jintao of China to allow the renminbi to appreciate and to back sanctions on Iran, as new figures showed that China’s foreign exchange reserves are growing at a slower rate than before, the FT reports. After an hour-and-a-half-long meeting on the sidelines of the nuclear security summit Mr Obama is hosting, the two sides emphasised their increasing co-operation after a period when Washington and Beijing appeared to be at loggerheads. Read more