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News from China
Yuan to stay stable versus other currencies
12th October 2016

 THE central parity rate of the yuan continued to weaken yesterday after hitting a six-year low against the US dollar on Monday. Analysts say this indicates the yuan’s exchange rate has entered a new float range and the yuan will stay basically stable against other currencies.

The central parity rate of the yuan, weakened 90 basis points to 6.7098 against the US dollar yesterday, according to the China Foreign Exchange Trading System.

A senior foreign exchange trade executive from a large domestic commercial bank said this indicated that the yuan’s exchange rate would fluctuate between 6.80 and 6.70 in the future and its recent inclusion in the IMF Special Drawing Rights basket will help the currency stay basically stable against other currencies.

Lu Zhengwei, chief economist with the Industrial Bank, said the high volatility of major currencies such as the pound against the US dollar since the beginning of October led to a stronger dollar index while the yuan’s exchange rate was flat during the National Day holiday.

At present, market makers follow the central parity rate price mechanism, which includes the reference to a basket of currencies, reference closing prices and the filtration mechanism under severe fluctuation.

Following the yuan’s drastic depreciation on Monday, the central bank did not trigger the filtration mechanism as in the past, which is a new signal of more market-oriented policies with a greater tolerance of yuan volatility, said Xie Yaxuan, an analyst with China Merchant Securities.

Sun Lijian, a senior finance researcher with Fudan University, said the yuan is under increasing depreciation pressure since the United States posted better-than-expected manufacturing PMI, consumer confidence index and employment data. Taking into account the November US presidential election, he expected a rise in the US interest rate in the middle of December.

But analysts say the yuan’s exchange rate also follows changes in the supply and demand of the foreign exchange market. As the supply and demand has become basically stable, the yuan’s exchange rate is winning support.

Xie said that from “recent economic data ... the exchange rate is expected to be stable, so the recent depreciation will have a limited influence on the financial market and the behavior of main economic sectors.”

Source: Shanghai Daily, October 12, 2016
Energy efficiency improves despite low oil prices
11th October 2016

 ENERGY efficiency accelerated last year despite low oil prices, according to a report from the International Energy Agency published yesterday, driven in large part by gains in China.

The 1.8 percent efficiency gain last year came as crude oil prices had dropped as far as 60 percent from 2014 highs, yet still beat the 1.5 percent increase in 2014, and was triple the average annual gain in the previous decade.

Low oil prices typically reduce investment in energy efficiency as the returns are smaller, but the IEA found government regulations concerning vehicles and buildings were driving gains.

While good news for climate change efforts, the efficiency gains come at a delicate juncture for the oil market, with global demand growth slowing and supply rising.

Efficiency helped keep energy demand flat last year in the 29 industrialized nations that are members of the IEA, while it rose by just 0.9 percent in China — the slowest rate in nearly two decades despite a 6.9 percent growth.

China led the efficiency pack, gaining 5.6 percent. Given that it is the world’s second-largest economy, it contributed 0.4 percent to the 1.8 percent global gain.

“China’s progress on energy efficiency is now at a scale where it is making a significant mark on global energy markets,” said the IEA.

The gains from efficiency are as large as China’s rapidly expanding renewable energy sector, and provided the added benefit of cutting air pollution.

While the acceleration in global energy efficiency gains was positive, the IEA noted they would need to shift up from a trajectory of 1.8 to 2.6 percent annual gains to achieve global climate change goals.

However, there is much room for further improvement. The IEA said that efficiency standards still only cover 30 percent of global energy use.

Source: Shanghai Daily, October, 2016
China’s forex reserves fall to 5-year low
10th October 2016

 CHINA’S foreign exchange reserves dropped around US$19 billion in September to a five-year low, government data showed, with the central bank spending heavily to defend the yuan against capital outflows.

The world’s largest currency hoard fell to under US$3.17 trillion, the People’s Bank of China said on its website on Friday, below median analyst forecasts of US$3.18 trillion in a Bloomberg News survey.

It was the third straight month of decline and brought China’s reserves to their lowest level since April 2011, Bloomberg said.

Analysts said the decline indicated China was selling foreign exchange to buy its yuan amid capital flight spurred by slowing growth in the world’s second largest economy.

The data came days after the yuan’s official entry into the International Monetary Fund’s elite SDR (Special Drawing Rights) basket of currencies.

In the months preceding the currency’s formal inclusion, China’s central bank spent “heavily” to keep the yuan’s value stable, roughly US$27 billion last month, said Julian Evans-Pritchard of Capital Economics.

But “with the inclusion of the renminbi (yuan) in the SDR basket now complete, the PBOC may no longer feel the need to intervene as heavily to counter capital outflows”, he said, adding that United States Federal Reserve rate hikes could increase depreciation pressure on the yuan in coming months.

Source: Shanghai Daily, October 10, 2016
Samsung's operating profit rises despite Note 7 recall
7th October 2016

 SAMSUNG Electronics saw its operating profit rise in the third quarter despite a global recall of Galaxy Note 7 smartphones, the company said on Friday.

The South Korean tech behemoth posted 7.8 trillion won (US$7 billion) in its preliminary figure for operating profit during the July-September period, up 5.55 percent from the same period last year.

It was down 4.18 percent from 8.14 trillion won tallied in the previous quarter, which was the largest in more than two years.

The third-quarter profit beat market expectations of about 7.4 trillion won thanks to brisk sales of semiconductors and display panels, analysts said.

The better-than-expected earnings result came despite the companys decision in early September to recall all of about 2.5 million Galaxy Note 7 smartphones shipped across the globe.

A number of cases that the Note 7 phones caught fire while charging were reported, leading many airlines to prevent passengers from holding the phones on flight for a fire hazard of batteries.

According to the U.S. Consumer Product Safety Commission, there were 92 reports of battery overheating in the United States, including 26 cases of burns and 55 involving property damage.

It is estimated that Samsung may report about 1 trillion won in losses from the Note 7 recall, and the exact earnings results from businesses would be reported later this month after an external audit.

Source: Shanghai Daily, October 7, 2016

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