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News from China
RMB rate 'in line with fundamentals'
12th August 2019

 The International Monetary Fund has affirmed its view that China’s exchange rate is broadly in line with economic fundamentals.

 
Experts said IMF’s new report provides further evidence that US designation of China as a “currency manipulator” is groundless and irresponsible.
 
China’s real effective exchange rate in 2018 is estimated to be at the same level as warranted by fundamentals and desirable policies, the IMF reiterated on Friday in a staff report after concluding the annual Article IV consultation to review the Chinese economy. It noted that the average REER in 2018 appreciated by about 1.4 percent relative to 2017, driven by the appreciation in the nominal effective exchange rate (1.5 percent).
 
“The external position in 2018 was assessed to be broadly in line with the level consistent with medium-term fundamentals and desirable policies,” the IMF said, consistent with its earlier conclusion in its annual External Sector Report released in July.
 
“The IMF report makes clear that there has been absolutely no currency manipulation and that China’s external balance has been appropriate,” Jeffrey Sachs, a senior United Nations advisor and renowned economics professor at Columbia University, told Xinhua in an e-mail.
 
In response to the IMF estimates through May 2019 which show the REER has depreciated by about 0.2 percent relative to the 2018 average, Sachs said the unilateral tariff action by the United States “surely has caused some depreciation” of the equilibrium REER.
 
“The US Treasury action declaring China a currency manipulator was blatantly arbitrary, capricious and political, based on Trump’s tweets rather than on objective analysis,” Sachs said, while noting that US trade and financial behavior towards China is “utterly irresponsible.”
 
The IMF report showed that China’s current account surplus fell by around 1 percentage point to 0.4 percent of gross domestic product in 2018 and it is projected to remain contained at 0.5 percent of GDP this year.
 
Noting that China’s current account surplus is “small,” Mark Sobel, non-resident senior adviser at the Center for Strategic and International Studies, and US chairman of the Official Monetary and Financial Institutions Forum, told Xinhua “that estimates suggest China has not been intervening in the foreign exchange market.”
 
“As such, the Article IV clearly rebuffs the recent US assertion that China is ‘manipulating’ its currency to gain unfair competitive trade advantage or prevent effective balance of payments adjustment,” said Sobel.
 
The IMF report came only a few days after the United States unilaterally labeled China as a “currency manipulator,” which prompted criticism from experts worldwide.
 
Former US Treasury Secretary Lawrence Summers criticized the US administration for naming China a “currency manipulator,” saying such a move has damaged the US credibility.
 
“Without some mercantile advantage, and with ongoing efforts to prop up the exchange rate and so raise export prices and reduce import prices, there is no credible manipulation claim here,” Summers argued in an opinion piece published on The Washington Post.
 
“It will be harder now in the next difficult financial moment for Treasury Department pronouncements to be credited by market participants,” said Summers, emphasizing that “the move down in the yuan on Monday was not artificial — it was an entirely natural market response to newly imposed US tariffs.”
 
Scott Kennedy, senior adviser of the Freeman Chair in China Studies and director of Project on Chinese Business and Political Economy at CSIS, said on Twitter that seven is not a “magic number,” noting that yuan’s fall below seven should not cause competitive devaluations and “isn’t proof of manipulation deserving of US retaliation.”
 
Source: Shanghai Daily, August 12, 2019
US industry insider says small business to suffer most from additional tariffs
9th August 2019

 

 
Small businesses not only in the United States but across the whole world will suffer from additional tariffs that the United States threatened to put on Chinese imports, US industry insider has said.
 
Marwan Forzley, CEO of Veem, a global payments company for small businesses, told Xinhua Wednesday that the tariff increase is a critical moment for small businesses.
 
"Without some form of relief, businesses will have to either absorb significant cost increases, pass along price increases to consumers, or fundamentally re-work their supply chain to keep the same level of profitability," he said.
 
Forzley said that comparing with large enterprises, small businesses will suffer more from the additional tariffs.
 
"Small businesses tend to suffer from this type of drastic change more than larger companies who have a greater means to deal with the situation," he said.
 
Forzley said small businesses can cope with the tariff increases through front-loading. "Saving money by stocking up on bulk orders is a viable option if offered by suppliers."
 
US President Donald Trump tweeted last week that he would place an additional 10 percent tariff on the remaining 300 billion US dollars worth of Chinese imports starting on September 1.
 
 
 
Source: Shanghai Daily, August 9, 2019
China's foreign trade up 4.2% in first 7 months
8th August 2019

 China's foreign trade of goods rose 4.2 percent year on year in the first seven months of this year to 17.41 trillion yuan (US$2.49 trillion), customs data showed Thursday.

 
Exports increased 6.7 percent year on year to 9.48 trillion yuan during the period, while imports grew 1.3 percent to 7.93 trillion yuan, the General Administration of Customs said.
 
China saw its trade surplus widen by 47.4 percent year on year to 1.55 trillion yuan during the same period.
 
China's trade mix continued to optimize with the general trade growing both in volume and proportion in the January-July period. General trade grew 5.7 percent year on year and accounted for 59.8 percent of the total trade, 0.8 percentage points higher than the same period of last year.
 
The European Union remained as China's largest trading partner in the period, with bilateral trade volume up 10.8 percent from one year earlier to 2.72 trillion yuan, followed by the ASEAN, up 11.3 percent to 2.35 trillion yuan, and the United States, down 8.1 percent to 2.1 trillion yuan.
 
China's trade with Belt and Road countries totaled 5.03 trillion yuan, up 10.2 percent year on year, 6 percentage points higher than the overall pace, said the GAC, adding that the amount accounted for 28.9 percent of China's total trade volume.
 
China's private businesses reported faster trade growth in the first seven months, with the trade volume increasing 11.8 percent to 7.31 trillion yuan. The amount accounted for 42 percent of the total trade volume in the period, up 2.9 percentage points year on year.
 
Source: Shanghai Daily, AUgust 8, 2019
China: US labeling arbitrary, unilateral, protectionist
7th August 2019

 China on Tuesday voiced strong opposition to the US decision to label it “a currency manipulator,” stressing that China has never resorted to competitive devaluation and will not use the currency as a tool to deal with trade disputes.

 
In a response to the designation, China’s central bank refuted the unilateral move, saying the label does not meet the quantitative criteria for the so-called “currency manipulator” set by the US Treasury.
 
“The US labeling is an arbitrary, unilateral and protectionist practice, which seriously undermines international rules and will significantly impact the global economy and financial markets,” the People’s Bank of China said in a statement.
 
Ronald Wen, a Hong Kong-based senior banker, said the alleged currency manipulation is a new weapon used by the US in the trade friction with China, sending a signal that the US-waged trade war is being expanded to more fields, including forex and financial markets.
 
The US Treasury designation was seen by analysts as a new excuse for more protectionist measures.
 
The US move reeks of arbitrariness and unilateralism, and will disrupt international trade rules and order as well as dampened investors’ confidence, experts said. “By labeling China a currency manipulator, the US is in fact continuing its maximum-pressure approach in trade talks,” said Liao Qun, chief economist of the China CITIC Bank International.
 
China and the US have been locked in a drawn-out trade dispute since last year.
 
On Monday, Chinese companies stopped purchasing US farm produce after the US decided to impose additional 10 percent tariffs on US$300 billion worth of Chinese imports, as the US move seriously violated the consensus reached by the two heads of state in Osaka, Japan.
 
China has long been committed to keeping the yuan’s exchange rate stable at a reasonable and balanced level, the central bank said.
 
The Chinese currency is among the strongest in the G20 and is one of the currencies that has seen substantial appreciation.
 
From the beginning of 2005 to June this year, the currency’s nominal exchange rate appreciated 38 percent and real exchange rate strengthened 47 percent. Last month, the IMF found in its latest annual assessment that the renminbi exchange rate was broadly in line with fundamentals.
 
From the macro perspective, the yuan’s exchange rate is buoyed by the country’s sound fundamentals, strong economic resilience, stable fiscal position, controllable financial risks, balanced cross-border capital movement and sufficient foreign exchange reserves.
 
China has no intention to gain trade advantages by devaluing its currency, as the yuan’s depreciation cannot necessarily lift exports, said Song Xiangyan, an analyst with the PBOC.
 
A large devaluation probably leads to panic capital outflows and competitive currency devaluation of China’s trading partners, which will undermine the country’s financial stability and hurt imports, Song added.
 
China will be committed to the promises on exchange rates made at all G20 summits and abide by a market-determined exchange rate system, the PBOC governor Yi Gang said. Refusing competitive devaluation, the country will not resort to exchange rates in handling external uncertainties such as trade disputes, he said.
 
Looking ahead, Yi stressed the central bank, together with the State Administration of Foreign Exchange, would maintain stability and continuity of the country’s foreign exchange management policy and safeguard market entities’ legitimate and reasonable demands for using foreign currencies.
 
 
 
 
Source: Shanghai Daily, August 7, 2019

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