Chinese Economics Thread

[coolgod]

This makes absolutely no sense. Why does china need to keep it's currency low when America is raising interest rates? The justification in the past is that weak yuan helps with export. But reality is that Chinese exports are already dirt cheap. Any export weakness is due to global demand and protectionism rather than lack of competitiveness.

Relying on the same old trick of keeping currency down to encourage export really doesn't apply here.

On the other hand, a stronger usd simply allows deep state to continue fund it's anti china agenda.

People all day want rmb to be internationalized and for usd to weaken. But then we get to this scenario and excuses are being made again.

Go back to beginning of this year on this thread and see how many people were excited about rmb appreciating.

Either you want a stable and strong rmb that other countries are willing to invest in or you don't.

Why would China want to keep currency high when it wants to promote RMB internationalization? I have already addressed reason why this is not a good idea.

Has anyone considered the possibility that China is suppressing the RMB not to help exports but to increase off shore RMB liquidity? If the RMB was strong and in high demand, how do you expect all those countries who have started trading with RMB to obtain the RMB necessary? Somebody needs to dump excess RMB on the market to make it easy for third parties to trading using the RMB.

Second, what about all those countries who have signed swap lines with China and have actually activated them think Argentina and Turkey, etc., they have to pay back in RMB, you think they can afford to pay back a strong RMB with interest?

Imagine China raises interests rates (to "defend the Yuan") and then what? Domestically it doesn't stimulate the economy, overseas/foreign individuals and businesses will store their RMB in a RMB account which is probably getting paid interest at around PBOC rate. Offshore RMB can also be loaned out to foreign business (russia or sanctioned)/countries (those activated chinese swap lines), who would have to pay higher interest and would have to pay back more due to RMB appreciation. Both of these factors would disincentivise the usage of offshore RMB. A strong RMB achieves none of China's objectives.

Take a look at the depreciation of USD vs gold (or other commodities) since Nixon shock, and the corresponding petrodollar hegemony. It is clear a weaker currency helps with internationalization, as strong currency would quickly lead to liquidity issues, which is literally the same reason why countries are abandoning the USD right now.

To spell it out for people who still have confusion, RMB can't magically appear offshore. It can only be created when PBOC or its affiliated institutions create a RMB denominated loan to some offshore entity. This loan has an interest rate that is correlated with the prevailing PBOC domestic rates, and this loan needs to be paid back in RMB. If the RMB was strong like the USD and have a high interest rate, would you take this RMB denominated loan over a USD or Euro denominated loan?

China doesn't need foreign accounts storing RMB in the bank as a means of diversifying investiment, China need foreign accounts who are willing to borrow RMB to use so it can actually circulate around the world.

 

[tphuang]

Interest rate parity is essential for preventing arbitrage condition. Interest rates is much higher in the US at the moment and is still rising. On the other hand, interest rates is decreasing in China to spur growth.

Due to lack of interest rate parity between the US and China, hot money is flowing out of China and arbitrators are shorting Yuan to make some quick gains. If China allowed Yuan to remain artificial high, then there would be more money leaving China which means China would need to spend its reserves to keep Yuan stronger. Since weak Yuan doesn't affect China much, there is no reason for China to waste its reserves to keep Yuan strong.

Yuan is not free floating to the same degree as jpy. Also, interest rate difference is not as large as be Japan and us. As such, there isnt going to be the same rmb carry trade.

China needs to take down its reserves for obvious reasons. Do you want it's UST holdings to get confiscated? The main rationale for keeping UST is to buy hydrocarbon. Now that china can pay these things in rmb, why the need to keep UST around?

As for bringing down its reserves, are you not getting the fact that Chinese banks are building up foreign currencies? China runs a huge surplus. By natural flow, rmb should appreciate from selling all that foreign currency. But the banks are not doing that, they have been accumulating more foreign currencies.

Why are they artificially maintaining lowering rmb? That's the question for you.

Why is it that a few months ago, everyone wanted strong rmb to catch up to America in GDP. And now, people want weak rmb. Decide which one you want and stick with it.

 

[tphuang]

Why would China want to keep currency high when it wants to promote RMB internationalization? I have already addressed reason why this is not a good idea.


Imagine China raises interests rates (to "defend the Yuan") and then what? Domestically it doesn't stimulate the economy, overseas/foreign individuals and businesses will store their RMB in a RMB account which is probably getting paid interest at around PBOC rate. Offshore RMB can also be loaned out to foreign business (russia or sanctioned)/countries (those activated chinese swap lines), who would have to pay higher interest and would have to pay back more due to RMB appreciation. Both of these factors would disincentivise the usage of offshore RMB. A strong RMB achieves none of China's objectives.

Take a look at the depreciation of USD vs gold (or other commodities) since Nixon shock, and the corresponding petrodollar hegemony. It is clear a weaker currency helps with internationalization, as strong currency would quickly lead to liquidity issues, which is literally the same reason why countries are abandoning the USD right now.

To spell it out for people who still have confusion, RMB can't magically appear offshore. It can only be created when PBOC or its affiliated institutions create a RMB denominated loan to some offshore entity. This loan has an interest rate that is correlated with the prevailing PBOC domestic rates, and this loan needs to be paid back in RMB. If the RMB was strong like the USD and have a high interest rate, would you take this RMB denominated loan over a USD or Euro denominated loan?

China doesn't need foreign accounts storing RMB in the bank as a means of diversifying investiment, China need foreign accounts who are willing to borrow RMB to use so it can actually circulate around the world.

You really have a lot to learn about foreign exchange trading.

 

[FriedRiceNSpice]

This makes absolutely no sense. Why does china need to keep it's currency low when America is raising interest rates? The justification in the past is that weak yuan helps with export. But reality is that Chinese exports are already dirt cheap. Any export weakness is due to global demand and protectionism rather than lack of competitiveness.

Relying on the same old trick of keeping currency down to encourage export really doesn't apply here.

On the other hand, a stronger usd simply allows deep state to continue fund it's anti china agenda.

People all day want rmb to be internationalized and for usd to weaken. But then we get to this scenario and excuses are being made again.

Go back to beginning of this year on this thread and see how many people were excited about rmb appreciating.

Either you want a stable and strong rmb that other countries are willing to invest in or you don't.

Would it be possible that temporarily allowing a weak RMB in order to create the expectation / sentiment that RMB will appreciate can potentially entice other nations to build up sufficient RMB holdings now in order to facilitate more RMB-denominated trade in the near future?

 

[coolgod]

You really have a lot to learn about foreign exchange trading.

Ok, please explain how a strong RMB exchange rate helps with the internationalization of the RMB. Your arguments that a strong RMB means more countries are willing to invest in (China?) is no where close to China's goals of the internationalization of the RMB. And don't go spouting that stuff because RMB is strong than it will be included in more countries as reserve currencies, because by that logic foreign reserves should be dominated by gold since the 1970s instead of USD assets.

Would it be possible that temporarily allowing a weak RMB in order to create the expectation / sentiment that RMB will appreciate can potentially entice other nations to build up sufficient RMB holdings now in order to facilitate more RMB-denominated trade in the near future?

China doesn't want anyone (domestic or foreign) to hold on to RMB with the expectation that it will appreciate. The PBoC is very clear about this and have issued many direct notices. China needs people overseas to use RMB to buy, sell and make loans, not hold RMB in a RMB bank account that is ultimately deposited at the PBoC.

 

[ansy1968]

Nah, more fundamentally, the problem is that the Philippines is a capitalist country and that the ruling class/elite does little to help the poor.

Even if US wasn't prepping for war, the difference would still be small (although likely better).

Spot on bro, a legacy of our foreign occupier, aside from the oligarch do you know who is the number one with huge land holdings in the Philippine, you guess it right, its the Catholic Church.

They don't pay taxes (both income earn and property), received preferential treatment and they're above the law ( they have their owned canon).

 

[FriedRiceNSpice]

Ok, please explain how a strong RMB exchange rate helps with the internationalization of the RMB. Your arguments that a strong RMB means more countries are willing to invest in (China?) is no where close to China's goals of the internationalization of the RMB. And don't go spouting that stuff because RMB is strong than it will be included in more countries as reserve currencies, because by that logic foreign reserves should be dominated by gold since the 1970s instead of USD assets.

China doesn't want anyone (domestic or foreign) to hold on to RMB with the expectation that it will appreciate. The PBoC is very clear about this and have issued many direct notices. China needs people overseas to use RMB to buy, sell and make loans, not hold RMB in a RMB bank account that is ultimately deposited at the PBoC.

The stability of the RMB, rather than how high or low the RMB is, seems likely to be a more important factor with RMB internationalization. Also, if large trade volume in RMB is to be desired, then wouldn't countries need to have at least a sufficient amount of RMB as reverses to minimize risks of disruption in trade?

 

[KYli]

Yuan is not free floating to the same degree as jpy. Also, interest rate difference is not as large as be Japan and us. As such, there isnt going to be the same rmb carry trade.

China needs to take down its reserves for obvious reasons. Do you want it's UST holdings to get confiscated? The main rationale for keeping UST is to buy hydrocarbon. Now that china can pay these things in rmb, why the need to keep UST around?

As for bringing down its reserves, are you not getting the fact that Chinese banks are building up foreign currencies? China runs a huge surplus. By natural flow, rmb should appreciate from selling all that foreign currency. But the banks are not doing that, they have been accumulating more foreign currencies.

Why are they artificially maintaining lowering rmb? That's the question for you.

Why is it that a few months ago, everyone wanted strong rmb to catch up to America in GDP. And now, people want weak rmb. Decide which one you want and stick with it.

I prefer Yuan to be more stable and not fluctuate too much. A slow and steady increase of Yuan value is desirable but China shouldn't go against the market fundamental.

As for cutting down reserves, I do believe that it is more important for China to lend more US dollars to other countries and invest in other countries that have a good relationship with China. In addition, buying gold, increasing domestic oil reserves, and strategic reserves for vital mineral are also a good way to spend dollars. As long as Saudi and the few other major oil producers are still only accepted dollars, I don't think it is time for China to ditch dollar reserves.

PBOC tends to be conservative and Yi Gang is even more conservative and risk averse. I do think Yuan could appreciate much more during 2021 and 2022 but I don't see anything wrong for Yuan depreciates at the moment.

As for the reasons, I would say Yen, won and Rupee have depreciated greatly from pandemic to now. China's exports was under tremendous pressure due to decoupling, a slowdown in the West and other developing countries that have their currencies depreciated. Even though a depreciated Yuan might not do much for exports, it does help exporters' profit margin. For PBOC and its conservative tendencies, Yuan depreciation is desirable. In addition, PBOC doesn't want to waste its reserves to fight the arbitrators at least not until Yuan is weaker to the extent that PBOC wouldn't require to spend too much of its reserves to maintain Yuan value.

 

[coolgod]

The stability of the RMB, rather than how high or low the RMB is, seems likely to be a more important factor with RMB internationalization. Also, if large trade volume in RMB is to be desired, then wouldn't countries need to have at least a sufficient amount of RMB as reverses to minimize risks disruption in trade?

I prefer Yuan to be more stable and not fluctuate too much. A slow and steady increase of Yuan value is desirable but China shouldn't go against the market fundamental.

How are you guys measuring the stability of RMB, by USD/CNY or other currency pairs? If USD or Euro is unstable, then unless China follows the same monetary policies you will always observe instability. Judging by the flux of central bank rates worldwide, wouldn't it be more accurate to say USD or Euro is unstable instead of saying the RMB is unstable?

Considering the users of offshore RMB would likely use it for trading with China, it would probably be more meaningful to judge the stability of RMB via other metrics, e.g., China's CPI, PBoC prime rate, or China's domestic commodity futures benchmarks.

 

[KYli]

How are you guys measuring the stability of RMB, by USD/CNY or other currency pairs? If USD or Euro is unstable, then unless China follows the same monetary policies you will always observe instability. Judging by the flux of central bank rates worldwide, wouldn't it be more accurate to say USD or Euro is unstable instead of saying the RMB is unstable?

Considering the users of offshore RMB would likely use it for trading with China, it would probably be more meaningful to judge the stability of RMB via other metrics, e.g., China's CPI, PBoC prime rate, or China's domestic commodity futures benchmarks.

USD is the king on the throne. USD might be unstable but Yuan only needs to dethrone USD. Therefore, Yuan should not depreciate too much against the dollars. As for appreciation, Yuan can rise steady or more rapidly depending upon the US monetary policies.