Globally Imbalanced

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Two more……

Wow. That was quick.

I started up this blog this week as I felt the coming months will be critical in US-China relations, especially related to currency. Yesterday’s example of leading Chinese businessmen coming out in favor of a stronger Yuan definitely struck me as an indication that the government is slowly considering allowing some CNY strength.

Well, today, add another two voices. First, came Cheng Siwei, a former Chinese lawmaker who is advocating a 6% band (3% above or below a midpoint). He commented, “I read a report saying that a 2 percent appreciation in the yuan might kill China’s textile industry. That is certainly an exaggeration.”

Mr. Cheng appears to be a longtime Party member, reaching the ranks of Vice Chairman of the 9th Standing NPC Committee in 1998-2003. These voices, grounded in public service, are exactly the type of voices to be listening for in the crucial month ahead.

Even more in line with the “random, seemingly trivial” leaks I mentioned that led up to the 2005 reval was a report in Caijing Magazine. An anonymous government source was reported saying, “If the central bank does not want to see a quick rate hike, a better way to fight inflation would be to expand the daily yuan trading band to allow the yuan to appreciate properly.”

I cannot stress the importance of these leaks and officials voicing their concerns. The tight control of the Chinese media is still firmly in place and it cannot be simple mistake and coincidence as these statements are released. My concern is that overly aggressive moves by the US government (i.e. an April 15th citation as a ‘currency manipulator’) will move this from a logical, economic debate to a nationalistic debate catalyzed by pride.

*Also of note: Caijing Magazine was a longtime, contrarian voice in the Chinese financial press, run by Hu Shuli. Hu’s departure in November 2009 was decried by many as a government takeover of a formerly independent voice. This actually makes the idea of Caijing printing the above statement without some implicit government permission even more implausible.

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Filed under: Chinese Politics, , ,

2 Responses

  1. […] Remember this moment…import prices are rising in China. An artificially weak Yuan is great for exporters but the tradeoff is that domestic consumption is hurt with a higher price for imports. Even more important to keep in mind is commodity imports. China’s demand for commodities will continue to grow, and most commodities are priced in USD. Keeping the CNY weak against the USD means that while China’s own businesses import oil and metals to function, it will get more and more expensive for them. This is one of the more pressing examples of the internal political divide that exists between the exporters who want to maintain this unsustainable currency arrangement, and the rest of the country that for the longer-term would benefit from a stronger CNY. […]

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About Me

Former emerging markets currency trader in NYC for seven years, turned MBA student at INSEAD living in Singapore.
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