As the People’s Bank of China mulls fresh rate cuts, officials might want to consider the laws of physics along with supply and demand.
Newton’s law tells us that every action has an equal and opposite reaction. The economic equivalent holds that additional PBOC easing risks provoking a similar dynamic from the Trump White House. In fact, the odds favor an even bigger one as China’s currency slides in response.
The laws of Trumponomics, after all, are more about resentment and victimhood than stirring animal spirits. And no woe-is-America narrative is more pervasive in the Trump era than China “raping” the US workforce and “stealing” growth from Washington.
An undervalued yuan is a pillar of this theory. It’s “killing us,” as Trump likes to say. Expect Trump’s ire to increase as the yuan weakens past 7 to the dollar – from today’s 6.96 – thanks to PBOC largess. That might provoke him to ratchet up the trade war.
Already, Trump is on the verge of doubling the number of Chinese imports his tariffs currently target – to $500 billion. He is mulling 25% tariffs on cars and auto parts, which would slam the supply chains on which President Xi Jinping’s economy relies.
Odds are, the White House is gaming additional measures to sabotage China’s growth engines.
Xi’s options
So, what are Xi’s options? His desire to jolt growth as exports weaken is understandable. Though Xi is the strongest Chinese leader in generations, his legitimacy rests on rapid gross domestic product growth. That goes for Communist Party bigwigs looking over his shoulder and rural workers tempted to protest an underperforming regime.
Yet a continued yuan slide could be more trouble than it’s worth. Along with provoking a new Trump assault, it might lead to defaults on overseas debt. It also might feed worries that Beijing is losing control of an imbalanced and debt-riddled economy.
Xi would be wiser to get creative. Rather than official cuts in the one-year lending rate now at 4.35%, why not pump liquidity directly into the private sector? The PBOC could create a financing window where executives meeting certain transparency and corporate governance metrics can access cash.
Accelerated infrastructure investments would generate growth with less fallout from Trump’s Washington. Analysts at Standard Chartered recommend other non-monetary steps: tax rebates for exporters; cutting value-added levies; targeted increases in “total social financing;” and reduced property-sector regulations.
Stocks pummeled
Such moves aren’t long-term fixes, of course. That requires Xi’s team to recalibrate growth drivers away from exports toward services. Xi’s “Made in China 2025” scheme aims to do just that, but big moves to catalyze a startup boom and create more space for an energetic private sector are few and far between.
In 2013, Xi pledged to give markets a “decisive role” in all Beijing decision making. Now, his team may be experiencing more of those forces than they’d like as short-sellers pounce. Punters have even taken to shorting yuan proxies, from the Australia dollar to the South Korean won.
As Chinese stocks sustain huge losses, Premier Li Keqiang promises to throw the private sector a lifeline. We’ve seen this movie before, though, and it ends in mediocrity. In fact, the risk is that 12 months from now, private Chinese enterprise is no more vibrant than it is now.
Among the collateral damage from Trump’s trade war is reduced appetite in Beijing for bold structural reforms. On a November 7 press conference, Trump reiterated that his real objective is stopping China raising its game heading toward 2025. He even embellished the extent to which Xi’s team is supposedly reversing course.
“China got rid of their ‘China ’25’ because I found it very insulting,” Trump said, despite all evidence to the contrary. “I said that to them. I said, ‘China ‘25’ is very insulting, because ‘China ’25’ means, in 2025, they’re going to take over, economically, the world. I said, ‘That’s not happening.’”
For Xi to salvage it, he will have to find ways to talk Trump out of going to Defcon 1. How best to do that is anyone’s guess. It’s clear, though, that the yuan weakening too far will have Trump upping the ante yet again.
Such a reaction would create new economic gravity troubles that China really doesn’t need.
Turmey ? Is that near E Turkmenistan ?
Turmey ? Is that near E Turkmenistan ?
Yes the USD is just paper, it’s rubbish. So why does the CCP hold so much of it as their currency reserves.
Who are the idiots.
Yes the USD is just paper, it’s rubbish. So why does the CCP hold so much of it as their currency reserves.
Who are the idiots.
The platform shoes are on their way comrade, so you wont have to hurt your neck looking up at those big Aussies.
The platform shoes are on their way comrade, so you wont have to hurt your neck looking up at those big Aussies.
The Fed jacking up interest rates naturally causes the dollar to rise, doesn’t it.
The Fed jacking up interest rates naturally causes the dollar to rise, doesn’t it.
"U.S. markets dropped Monday on renewed fears that the tech sector has run out of steam.
The Dow Jones industrial average dropped 601 points, or 2.3 percent, to 25,387.18 in the session.
The blue-chip barometer was dragged lower by the tech-heavy Nasdaq composite index, which tanked 2.8 percent on the weak technology shares. More than 70 percent of the tech sector is in correction territory — meaning the share prices are more than 10 percent off their peak.
The Standard & Poor’s 500-stock index was off 2 percent. Of its 11 sectors, real estate was the only one that ended trading in the black Monday."
see: https://www.washingtonpost.com/business/economy/us-stocks-skid-again-on-renewed-fears-that-tech-sector-has-run-out-of-steam/2018/11/12/a69682ae-e698-11e8-b8dc-66cca409c180_story.html?utm_term=.afd69d24694b
"U.S. markets dropped Monday on renewed fears that the tech sector has run out of steam.
The Dow Jones industrial average dropped 601 points, or 2.3 percent, to 25,387.18 in the session.
The blue-chip barometer was dragged lower by the tech-heavy Nasdaq composite index, which tanked 2.8 percent on the weak technology shares. More than 70 percent of the tech sector is in correction territory — meaning the share prices are more than 10 percent off their peak.
The Standard & Poor’s 500-stock index was off 2 percent. Of its 11 sectors, real estate was the only one that ended trading in the black Monday."
see: https://www.washingtonpost.com/business/economy/us-stocks-skid-again-on-renewed-fears-that-tech-sector-has-run-out-of-steam/2018/11/12/a69682ae-e698-11e8-b8dc-66cca409c180_story.html?utm_term=.afd69d24694b
The problem is not that Yuan has declined but the dollar has strengthened against all major currencies, Euro, pound, etc.
The problem is not that Yuan has declined but the dollar has strengthened against all major currencies, Euro, pound, etc.
News at 10… Only Chinese cheat, never before has a White-man cheated on anything.
Trump’s own treasury secretary (Mnuchin) led an treasury-wide investigation – they found that China is NOT engaged in currency manipulation:
https://www.bbc.com/news/business-45896472
Count the trillions spent on the military in Iraq/Afghanistan and you’ll find where the wasted money went. The West has only benefited from China, but instead of spending that money on its own citizens for education/innovation/industrial subsidies – you’ve instead spent the money on tomahawk missiles and payouts to the defense industry.
Btw, it’s spelled "peasant".
News at 10… Only Chinese cheat, never before has a White-man cheated on anything.
Trump’s own treasury secretary (Mnuchin) led an treasury-wide investigation – they found that China is NOT engaged in currency manipulation:
https://www.bbc.com/news/business-45896472
Count the trillions spent on the military in Iraq/Afghanistan and you’ll find where the wasted money went. The West has only benefited from China, but instead of spending that money on its own citizens for education/innovation/industrial subsidies – you’ve instead spent the money on tomahawk missiles and payouts to the defense industry.
Btw, it’s spelled "peasant".
Being a sieve and having thousands of holes disgracing a needle for its hole. Bullying is in our DNA. And now according to facts check our president Trump lies 8 times a day on an average. Let’s be sobor first and then ask others to be sober.
Being a sieve and having thousands of holes disgracing a needle for its hole. Bullying is in our DNA. And now according to facts check our president Trump lies 8 times a day on an average. Let’s be sobor first and then ask others to be sober.
Which won’t happen
Which won’t happen
Jason Jean Things change. Get yourself updated.
Jason Jean Things change. Get yourself updated.