It appears USDCNH spot is chasing the spread in 10y CGB and UST, nowhere as bad as cable though. PBoC announced the other day to put back in FX risk reserve ratio to 20% starting this week. That's the same level as those in place in Oct 2020, basically asking anyone potentially betting on one way depreciation of the currency feeling lucky. More important item is the sanction funds, they are taking shape.
Chinese Economics Thread
- Thread starter Norfolk
- Start date
Quickie
Colonel
The Yuan is dropping along with the other currencies other than the U.S. dollars. Price pressure and therefore competitiveness will probably be about the same relative to these countries other than the U.S. Imports from the U.S. would be more expensive but still imports from the other countries may not necessarily be cheaper if the exporters continue pricing their products in U.S. dollars.
Yuan is in the same boat as the rest of the world's currencies other than the exceptional U.S. dollar. But at what cost? The higher the climb, the harder the fall?
Not necessarily.
It's weird. Half the time nowadays, we gotta throw out the textbook.
1. Weaker yuan should mean lower domestic consumption. However, this is not the case today, for example in oil imports to China. Since China is paying Russia in Yuan or Roubles for that oil, it matters little what the USD exchange rate is. Furthermore, they buying that oil at a discount.
2. Paradoxically or expectedly, a really strong US Dollar could force people to not use USD in international trade.
Suppose some Indonesian company or someone in ASEAN wants to buy something from a Chinese state owned company. The SOE quotes the ASEAN company a price in dollars.
Since the dollar is expensive, the ASEAN company comes back with an offer, saying, I am short of dollars, can I pay you in Yuan or my local currency? The Chinese SOE will accept.
See where they are going with this. When the shoe is on the other foot, and the Chinese SOE wants to buy something from an ASEAN company, then they will want to pay them in dollars, just to get rid of dollars. China gets rid of its dollars, and the ASEAN company gets something that is currently higher priced, everyone happy.
See where they are going with this. When the shoe is on the other foot, and the Chinese SOE wants to buy something from an ASEAN company, then they will want to pay them in dollars, just to get rid of dollars. China gets rid of its dollars, and the ASEAN company gets something that is currently higher priced, everyone happy.
Okay, we can now even go one step further in our thoughts.
Maybe something like this could be in the works.
China is still a command economy, in some respects.
We also know that with the situation in Europe, there could be a global slowdown.
Ergo, what should China do?
Since the dollar is expensive, means that others wants dollars, and since China got lots of dollars that they might not necessarily want (yah, go figure), then why not for China to go on a spending spree, building up inventory of stuff.
Essentially using the Chinese dollar reserves to stockpile commodities.
- when the dollar is high
- when global recession is a real threat
- when they want to get rid of their dollar for prudent reasons of diversification
Other people, the trading partners of China, will appreciate the orders, and the generosity of paying in dollars.
Plus the fact that they got a BRI commercial network already in place.
When opportunity knocks, go answer that freaking door! Like a MoFos.
That's business. Sometimes gotta be ruthless and cunning. Like those Godfather movies, which Marlon Brando and Al Pacino.
The Biden people, they think they are ruthless and cunning, when they are not. They more stupid than anything else.
The Americans need President Trump back, before things get worst. Trump, he's the savior, the chosen one.
1%-3% inflation is the ideal situation. However, I was comparing the inflation in the West and the deflation pressure that might happen in China. In addition, I don't think there would be deflation in China and even if it did, it would be a short one.
I think at the current moment, China wants to push using their dollar reserves to pick up cheap EU industries, pushing consumption is secondary to that.
Don't think China will be allowed to buy up thing in Europe after China bought Kuka from Germany. The EU created some investment organisation that needs to validate if something can be bought by non EU members.
China won't be investing through fdi lmao, they will be doing the complete opposite of that. Let desparate companies that can't sustain operations in EU move their operations to China. Which benefits from lowering the yuan.
Weaker yuan means lower domestic consumption of european brand product.
Better than GOOD.