Chinese Economics Thread

[2handedswordsman]

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.

China needs this artificial (or not-because of debt) demand to keep on it's own growth on it's socialist-capitalist way. Capitalism need an everending demand and growth to be effective. If they want to keep on that way China needs an enormous demand even bigger than it's population needs(including the productivity optimisation). If they want to cut off the demand of the west they have to either replace it with another demand of comparative magnitude or to turn to pure socialism, where the productivity and innovation is driven by science and not by third party demand. This logical crossroad is heading towards rapidly

 

[coolgod]

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.

China can't really control how much the RMB depreciates vs the USD since that is decided by the Fed's interest rate. Also this divergence of interest rates leading to fluctuations in USD/CNY and other currency pairs is intentional. These counter-cyclical measures are definitely discussed and agreed upon during PBoC regular meetings with US counterparts.

If PBoC follows the Fed in raising the interest rate, it would cause a global liquidity crisis, which is detrimental to US, China and the whole world. Where would Argentina or Turkey get (i.e., borrow) foreign currencies from? Think about countries or private businesses with even less leverage. How can they afford the RMB market interest rates?

 

[AndrewS]

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.

Simply put, if China wants to retain as large a manufacturing capacity as possible, China is going to have a weak currency and end up with a trade surplus.
And there there really isn't any alternative to holding large amounts of USD.
But that risk is acceptable for the reasons below.

---

These are the reasons I see why China still wants a weak currency and therefore has to hold/accumulate USD.

1. Helps retain existing low-value manufacturing. That translates into jobs for low-skilled workers which China still has many of

2. Gain more high-end manufacturing industries eg. Energy and electric vehicles. These are the industries of the future which will power future economic growth to high-income status

3. The more manufacturing China has, the more the rest of the world is dependent on China. That makes decoupling or derisking so much more difficult. It means imposing sanctions on China isn't an option, particularly since the West only accounts for 15% of global population and 40% of global economic activity

4. If China is sanctioned, it's pretty much guaranteed that a war (of some sort) is happening or will happen. In such a scenario, having overwhelming manufacturing capacity to win any war is more important than losing a few Trillion USD. In the aftermath, we may even see these USD assets being returned as part of any settlement or reparations.

 

[AndrewS]

China can't really control how much the RMB depreciates vs the USD since that is decided by the Fed's interest rate. Also this divergence of interest rates leading to fluctuations in USD/CNY and other currency pairs is intentional. These counter-cyclical measures are definitely discussed and agreed upon during PBoC regular meetings with US counterparts.

If PBoC follows the Fed in raising the interest rate, it would cause a global liquidity crisis, which is detrimental to US, China and the whole world. Where would Argentina or Turkey get (i.e., borrow) foreign currencies from? Think about countries or private businesses with even less leverage. How can they afford the RMB market interest rates?

There is already a global USD liquidity crisis and shortages.

There are some countries which have unlimited USD swap lines with the US, but the rest of the world does not.

 

[luosifen]

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2023-08-02 16:20:14chinadaily.com.cn Editor : Li Yan

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During the first six months of this year, urban residents' per capita disposable income topped 20,000 yuan ($2,784.58) in eight of China's 31 provincial-level regions, one more from the previous year, financial news outlet Yicai reported Wednesday.
The National Bureau of Statistics recently announced the per capita disposable income in China's 31 provinces, municipalities and autonomous regions.
Average per capita disposable income in Shanghai reached 42,870 yuan, the highest among China's 31 provincial-level regions, followed by Beijing (41,358 yuan) and Zhejiang province (34,317 yuan).
China's average per capita disposable income stood at 19,672 yuan in the first half, up 6.5 percent year-on-year and up 1.4 percentage points from the first quarter, NBS data showed.
A total of nine provincial-level regions outperformed the national average, including Shanghai, Beijing, Zhejiang province, Jiangsu province, Tianjin, Guangdong province and Fujian province, Shandong province, and Chongqing municipality.
Among them, the per capita disposable income in Shandong province crossed the 20,000 yuan threshold for the first time, reaching 20,309 yuan in the first six months.

 

[coolgod]

There is already a global USD liquidity crisis and shortages.

There are some countries which have unlimited USD swap lines with the US, but the rest of the world does not.

You understand my point then, if China followed similar interest rates and monetary policy as the US, we would have a global liquidity crisis (and probably global financial crisis too), unlike now. China's relatively weak RMB is what's keeping all those developing countries with a small foreign reserve and lack of USD swap lines alive. That's why you hear all these stories now about xxx country starting to use RMB, because they can't afford to borrow and pay in USD right now.

 

[KYli]

China can't really control how much the RMB depreciates vs the USD since that is decided by the Fed's interest rate. Also this divergence of interest rates leading to fluctuations in USD/CNY and other currency pairs is intentional. These counter-cyclical measures are definitely discussed and agreed upon during PBoC regular meetings with US counterparts.

If PBoC follows the Fed in raising the interest rate, it would cause a global liquidity crisis, which is detrimental to US, China and the whole world. Where would Argentina or Turkey get (i.e., borrow) foreign currencies from? Think about countries or private businesses with even less leverage. How can they afford the RMB market interest rates?

RMB as a major currency won't depreciate too much against USD even if the there is a divergence of interest rates. Dollars is already at its peak as many other major currencies have started to gain against dollars.

I understand what you are saying. Not saying that PBOC needs to follow the Fed in order to stabilize yuan. On the contrary, China is only one of the few countries that doesn't need to follow the Fed. More importantly, even if there is a divergence of interest rates, yuan won't depreciate much due to the fundamental strengthen of China's economy.

 

[tphuang]

Simply put, if China wants to retain as large a manufacturing capacity as possible, China is going to have a weak currency and end up with a trade surplus.
And there there really isn't any alternative to holding large amounts of USD.

gold, lending RMB to countries & capture their energy industry. invest more in BRI & buy up more mines

But that risk is acceptable for the reasons below.

---

These are the reasons I see why China still wants a weak currency and therefore has to hold/accumulate USD.

1. Helps retain existing low-value manufacturing. That translates into jobs for low-skilled workers which China still has many of

2. Gain more high-end manufacturing industries eg. Energy and electric vehicles. These are the industries of the future which will power future economic growth to high-income status

3. The more manufacturing China has, the more the rest of the world is dependent on China. That makes decoupling or derisking so much more difficult. It means imposing sanctions on China isn't an option, particularly since the West only accounts for 15% of global population and 40% of global economic activity

4. If China is sanctioned, it's pretty much guaranteed that a war (of some sort) is happening or will happen. In such a scenario, having overwhelming manufacturing capacity to win any war is more important than losing a few Trillion USD. In the aftermath, we may even see these USD assets being returned as part of any settlement or reparations.

I agree that you'd want to retain as much manufacturing as possible, but China is achieving that with its automation & low infrastructure/energy cost. All of which allow them to keep all the low value manufacturing they need.

the ultimate problem with them attracting more manufacturing is geopolitical. If western companies are getting told to move away from that, some will do so regardless of the costs.

Having manufacturing capacity in clothing & furnitures really won't matter all that much in a war. Whereas not having enough financial power during the current power struggle actually does matter

China having more low value manufacturing also does not help with derisking, since any country can do them. China having higher cost in higher value manufacturing really wouldn't hurt that much, since their cost advantage in batteries, evs, wind, solar & semi are 3 or 4x. The gap is really large.

 

[tphuang]

People, higher interest rate causes stronger currency when you have a free floating currency. Most of RMB are kept onshore. You can't do arbs to the same degree you can with JPY.

At end of the day, with China huge trading surplus and ability to pay commodities in RMB, it will always end up with excessive dollars that need to be can be brought back into China or invested in a bank or instrument denominated in USD (whether that's UST, agency bond, corp bond, stocks, companies or something else). Just take a look at the discussions around unwinding of JPY carry trade. Do you really think China should kept away in hostile foreign countries?

 

[KYli]

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