Shanghai plans to become a global center for yuan trading by 2015, open its markets wider to foreign investors and almost triple non-currency financial transactions, reports Bloomberg. The city will allow “significantly more” foreign participation in its financial markets, according to the plan jointly published by the National Development and Reform Commission and the Shanghai government on Monday. Shanghai aims to have about 1,000tn yuan ($158tn) in financial trading, excluding the currency transactions, by 2015, compared with 386.2tn yuan in 2010, the plan said.
President Obama was in Hawaii this weekend to promote the Trans-Pacific Partnership, a trade accord that would be the the largest the US has entered into since the North American Free Trade agreement in 1994. The agreement includes nine countries in the Asia Pacific and may be expanded to include Japan and Canada, according to Bloomberg. The pact would seek to free up trade via traditional channels by addressing tariffs and allowing better market access, but it also aims to address any unfair advantages that state-owned enterprises may have when bidding for business. The agreement is meant to be signed within a year, though some participants in the negotiations think that it will prove too difficult to meet that timeline. At the same meeting in Hawaii, President Obama also remarked on the yuan’s appreciation being too slow, Bloomberg reports.
What are chances of a soft landing for the Chinese economy? Pretty slim if you ask über bear Albert Edwards.
The Société Générale strategist reckons “blind faith” in the competence of the Chinese authorities to guide the economy to a soft landing is misguided. He says: Read more
A bill that aims to punish Beijing for holding down its currency passed the Senate on Tuesday despite a warning from China that the legislation could plunge the global economy into a 1930s-like depression, the FT reports. The legislation passed the Democrat-led Senate with a comfortable 63-35 majority, with several Republican senators also supporting the bill. The vote could set up a tussle with the House of Representatives, whose Republican leaders have called the bill “dangerous” and so far have refused to schedule a vote on it. China stepped up its criticism of the bill, with foreign ministry spokesman Ma Zhaoxu said in a statement warning the move “seriously violates rules of the World Trade Organisation and obstructs China-US trade ties”, Xinhua reports.
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.
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.”
The US Congress is renewing a push to penalise China over its currency, the FT says, potentially forcing the White House to choose between angering its Democratic base and upsetting its delicately balanced relations with Beijing. The Senate is expected to vote on anti-China trade legislation on Monday, with the bill likely to pass with overwhelming bipartisan support, before being sent to the House of Representatives. The White House has given mixed signals on the subject. The bill would require the commerce department to use estimates of currency undervaluation when calculating so-called countervailing duties, imposed against imports deemed to be state-subsidised. Although the legislation has been drawn more tightly than previous such bills, which simply proposed levying an across-the-board tariff on Chinese imports, many trade lawyers think it would still be vulnerable to legal challenge at the World Trade Organisation.
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.
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.
The yuan strengthened beyond Rmb6.4 per dollar for the first time in 17 years, Bloomberg reports, supported by the Federal Reserve’s pledge to keep interest rates at a record low and signs China will use currency gains to help rein in inflation. The currency rose the most since November and 12-month non-deliverable forwards climbed to a three-month high after the central bank’s daily fixing had its biggest jump of 2011. The move reinforces the perception that Beijing is allowing the yuan to play a key role in containing high inflation, says the WSJ. Chinese officials said that inflation still needed to be closely monitored, China Daily reports.
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.
China’s most important gauge of short-term funding costs has risen to a three-year high, illustrating the severity of the government’s monetary tightening and the stress it is placing on businesses, the FT reports. The country’s seven-day government bond repurchase rate is notoriously volatile and is expected to fall after a month-end cash shortage eases. But in jumping to its highest level since late 2007, this barometer of interbank liquidity has raised fresh questions about the extent to which China’s fight against inflation could undermine economic growth. The seven-day repurchase, or repo, rate, hit 8.9 per cent on Wednesday, up more than 500 basis points from its average in May. Analysts said regional and municipal banks were being hit hard, because they are net borrowers in the interbank market. See the chart on FT Alphaville.
We knew that China’s efforts to internationalise the RMB were moving along nicely, but thus far CNH deposits (yuan held offshore in Hong Kong) are still a relatively small part of China’s total deposit base.
But a new paper from RBS notes that as a percentage of Hong Kong deposits, they’re becoming a big deal indeed, and quickly: Read more
Relax, kids: a demographic tidbit from Citi’s emerging market round-up on Monday:
China will relax the one-child policy in five provinces this year and probably switch to the two-child policy within five years. According to the Chinese Liaowan Weekly, under the new policy, all couples with a one-child family can have two children. Read more
With bank credit being tightened across the country it seems clear that China’s property developers increasingly desire to fund via the bond markets.
Some, though, have been increasing bond sales more than others. Read more
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.
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.
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.
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.
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.
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.