HONG KONG — Every weekday morning this year, China’s currency has followed the same ominous path.
The central bank in Beijing fixes the initial value for the renminbi, the center point for the currency’s daily trading range.
It is roughly the same value, 6.12 to 6.13 to the dollar. Then the markets open in Shanghai, and the renminbi quickly sinks close to the bottom of the currency’s trading band, roughly 2 percent lower.
Only frequent intervention by the central bank — buying renminbi and selling dollars — prevents the Chinese currency from falling even further.
The weakness in the renminbi is a growing worry for government policy makers and corporate executives. The currency’s decline reflects the money flowing out of the country. Wealthy Chinese are moving large sums overseas, troubled by President Xi Jinping’s anti-corruption campaign and the country’s slowing economy.
Foreign investors are also growing more skeptical of China. For many years, China kept the renminbi weaker than economic fundamentals dictated, to help its exporters stay competitive in foreign markets. But a weak renminbi is no longer an unalloyed advantage.
Chinese banks and companies have borrowed overseas an estimated $1 trillion in mostly short-term, dollar-denominated debt over the last five years.
They were betting that the renminbi would continue its decade-long gradual appreciation, which would have made their debts in dollars less expensive to repay. But a depreciating renminbi makes that debt more costly.That puts central bank officials in a quandary.
“They cannot afford to let it depreciate too quickly,” said Liu Li-gang, a China economist at ANZ, a big Australian bank.
“Firms could be pushed into default.”
Almost no one expects a sudden, disorderly fall in the renminbi. At $3.84 trillion, China’s foreign exchange reserves dwarf every other country’s, accounting for a sixth of the entire world’s supply. China can easily fend off any attempt to “break the renminbi” in currency markets.
But banks, traders and many companies increasingly expect at least gradual depreciation. In preparation, they are starting to shift money out of China and place bets instead on a weakening renminbi.
Bank of America Merrill Lynch advised clients last week that although a sharp fall in the renminbi was not the most likely possibility, they should still consider protecting themselves against the risk by reducing holdings in Chinese banks, real estate developers and other companies with large overseas debts.
It also recommended stepping up investments in Chinese exporters, which will gain if their sales in dollars are worth more in renminbi at home.
The problem for Chinese policy makers, increasingly apparent in their official statements, is that vigorously defending the renminbi carries a potentially high price in slower economic growth. Using foreign exchange reserves to support the currency — spending dollars to buy up renminbi — means the central bank is effectively taking billions of renminbi out of circulation.
The renminbi is then not flowing through the economy, where it can bolster growth. Continue reading the main story Current Chinese policy is trying to encourage the opposite, by pushing more renminbi into economic activity as the official growth rate has drifted down, close to 7 percent.
Informal measures like steel prices and electricity consumption suggest that the actual pace of economic growth may be even weaker.
“We need to be proactive, and use timely structural adjustments and fine-tuning to take aim at all the issues that may arise,” the central bank wrote in a quarterly report published on Feb. 10, citing weakness in the global economy and the slowdown in China.
The People’s Bank of China recently lowered the proportion of assets that commercial banks need to hold as reserves, allowing them to lend roughly an extra $100 billion — a decision needed partly to offset the renminbi pulled out of the economy as part of currency market intervention.
The central bank then announced further monetary stimulus, allowing small banks around the country to borrow directly from it, provided they post government securities or highly rated bonds as collateral.
A weaker renminbi isn’t all bad. China’s large export sector had been complaining bitterly until very recently, as the currency’s link to the strengthening dollar meant that the renminbi gained considerably against the stumbling euro and Japanese yen.
If the renminbi tumbles, that should benefit exporters. Liao Xiaomei, the overseas sales manager at the Ying Jia Aluminum Company in Zhongshan in southeastern China, said that the renminbi’s rise against the euro had made it much harder for her to sell prepainted aluminum sheets to Europe.
“Some of the customers in Europe ultimately source from other countries in Europe after factoring in the renminbi exchange rate and the lengthier transportation and time costs from China,” she said.
“A depreciation of the renminbi would certainly help us expand our client base, especially as workers’ wages have continued to rise 10 to 15 percent a year.”
The potential gains in exports would, in turn, bring dollars into the country, helping offset the country’s outflows. China maintains a huge trade surplus in goods, particularly with the United States, to which it exports almost $4 of goods for every $1 of imports that it buys.
A weaker renminbi could produce greater tensions with the United States, by widening that trade imbalance.The Obama administration is in a tricky position, however. It has long argued that Beijing should guide the value of the renminbi less and let market forces prevail.
But following that logic now and letting the renminbi fall further could make it even harder for American producers to compete. Any Chinese export gains, though, are unlikely to make up for the flood of money leaving the country.
After recording consistent net inflows of money for the last decade, China posted a $96 billion outflow just in the fourth quarter of last year. That outflow reflected a mixture of trends. Companies are starting to pay down overseas debts. Investors are betting that the returns will be higher on overseas investments than in a slowing China.
And wealthy families are trying to move their assets beyond the reach of China’s ever-broadening corruption investigations.Adding to the outflows, China is developing a sizable and widening deficit in trade in services, notably tourism.
As recently as 2009, foreigners spent as much to travel in China as the Chinese spent to travel overseas. But the huge crowds of mainland Chinese tourists who have swamped destinations like the Louvre in Paris are now spending ever more lavishly, and that is starting to make a difference.
In the fourth quarter of last year, China’s trade deficit in tourism almost tripled from the same quarter a year earlier, to $36.37 billion. And Chinese tourists do not just pay for hotel rooms and museum tickets when they go overseas.
Many are extraordinary shoppers, finding prices much lower abroad than in China, which imposes a 17 percent value-added tax plus a 20 percent import tax on a wide range of goods, particularly luxuries. They sell tens of thousands of renminbi to buy dollars for each trip.
Qiao Huiying, 50, a high school history teacher from Beijing who recently visited France, Italy and Germany, paused recently while taking photos of Hong Kong harbor with her husband and daughter.
“Things are cheaper in Hong Kong,” she said, laden with purchases from a morning of shopping. “So we have bought new clothes, cameras and cosmetics here — especially for cosmetics, we purchased brands that we cannot find at home, like Aesop and YSL.”
nytimes.com
It is roughly the same value, 6.12 to 6.13 to the dollar. Then the markets open in Shanghai, and the renminbi quickly sinks close to the bottom of the currency’s trading band, roughly 2 percent lower.
Only frequent intervention by the central bank — buying renminbi and selling dollars — prevents the Chinese currency from falling even further.
The weakness in the renminbi is a growing worry for government policy makers and corporate executives. The currency’s decline reflects the money flowing out of the country. Wealthy Chinese are moving large sums overseas, troubled by President Xi Jinping’s anti-corruption campaign and the country’s slowing economy.
Foreign investors are also growing more skeptical of China. For many years, China kept the renminbi weaker than economic fundamentals dictated, to help its exporters stay competitive in foreign markets. But a weak renminbi is no longer an unalloyed advantage.
Chinese banks and companies have borrowed overseas an estimated $1 trillion in mostly short-term, dollar-denominated debt over the last five years.
They were betting that the renminbi would continue its decade-long gradual appreciation, which would have made their debts in dollars less expensive to repay. But a depreciating renminbi makes that debt more costly.That puts central bank officials in a quandary.
“They cannot afford to let it depreciate too quickly,” said Liu Li-gang, a China economist at ANZ, a big Australian bank.
“Firms could be pushed into default.”
Almost no one expects a sudden, disorderly fall in the renminbi. At $3.84 trillion, China’s foreign exchange reserves dwarf every other country’s, accounting for a sixth of the entire world’s supply. China can easily fend off any attempt to “break the renminbi” in currency markets.
But banks, traders and many companies increasingly expect at least gradual depreciation. In preparation, they are starting to shift money out of China and place bets instead on a weakening renminbi.
Bank of America Merrill Lynch advised clients last week that although a sharp fall in the renminbi was not the most likely possibility, they should still consider protecting themselves against the risk by reducing holdings in Chinese banks, real estate developers and other companies with large overseas debts.
It also recommended stepping up investments in Chinese exporters, which will gain if their sales in dollars are worth more in renminbi at home.
The problem for Chinese policy makers, increasingly apparent in their official statements, is that vigorously defending the renminbi carries a potentially high price in slower economic growth. Using foreign exchange reserves to support the currency — spending dollars to buy up renminbi — means the central bank is effectively taking billions of renminbi out of circulation.
The renminbi is then not flowing through the economy, where it can bolster growth. Continue reading the main story Current Chinese policy is trying to encourage the opposite, by pushing more renminbi into economic activity as the official growth rate has drifted down, close to 7 percent.
Informal measures like steel prices and electricity consumption suggest that the actual pace of economic growth may be even weaker.
“We need to be proactive, and use timely structural adjustments and fine-tuning to take aim at all the issues that may arise,” the central bank wrote in a quarterly report published on Feb. 10, citing weakness in the global economy and the slowdown in China.
The People’s Bank of China recently lowered the proportion of assets that commercial banks need to hold as reserves, allowing them to lend roughly an extra $100 billion — a decision needed partly to offset the renminbi pulled out of the economy as part of currency market intervention.
The central bank then announced further monetary stimulus, allowing small banks around the country to borrow directly from it, provided they post government securities or highly rated bonds as collateral.
A weaker renminbi isn’t all bad. China’s large export sector had been complaining bitterly until very recently, as the currency’s link to the strengthening dollar meant that the renminbi gained considerably against the stumbling euro and Japanese yen.
If the renminbi tumbles, that should benefit exporters. Liao Xiaomei, the overseas sales manager at the Ying Jia Aluminum Company in Zhongshan in southeastern China, said that the renminbi’s rise against the euro had made it much harder for her to sell prepainted aluminum sheets to Europe.
“Some of the customers in Europe ultimately source from other countries in Europe after factoring in the renminbi exchange rate and the lengthier transportation and time costs from China,” she said.
“A depreciation of the renminbi would certainly help us expand our client base, especially as workers’ wages have continued to rise 10 to 15 percent a year.”
The potential gains in exports would, in turn, bring dollars into the country, helping offset the country’s outflows. China maintains a huge trade surplus in goods, particularly with the United States, to which it exports almost $4 of goods for every $1 of imports that it buys.
A weaker renminbi could produce greater tensions with the United States, by widening that trade imbalance.The Obama administration is in a tricky position, however. It has long argued that Beijing should guide the value of the renminbi less and let market forces prevail.
But following that logic now and letting the renminbi fall further could make it even harder for American producers to compete. Any Chinese export gains, though, are unlikely to make up for the flood of money leaving the country.
After recording consistent net inflows of money for the last decade, China posted a $96 billion outflow just in the fourth quarter of last year. That outflow reflected a mixture of trends. Companies are starting to pay down overseas debts. Investors are betting that the returns will be higher on overseas investments than in a slowing China.
And wealthy families are trying to move their assets beyond the reach of China’s ever-broadening corruption investigations.Adding to the outflows, China is developing a sizable and widening deficit in trade in services, notably tourism.
As recently as 2009, foreigners spent as much to travel in China as the Chinese spent to travel overseas. But the huge crowds of mainland Chinese tourists who have swamped destinations like the Louvre in Paris are now spending ever more lavishly, and that is starting to make a difference.
In the fourth quarter of last year, China’s trade deficit in tourism almost tripled from the same quarter a year earlier, to $36.37 billion. And Chinese tourists do not just pay for hotel rooms and museum tickets when they go overseas.
Many are extraordinary shoppers, finding prices much lower abroad than in China, which imposes a 17 percent value-added tax plus a 20 percent import tax on a wide range of goods, particularly luxuries. They sell tens of thousands of renminbi to buy dollars for each trip.
Qiao Huiying, 50, a high school history teacher from Beijing who recently visited France, Italy and Germany, paused recently while taking photos of Hong Kong harbor with her husband and daughter.
“Things are cheaper in Hong Kong,” she said, laden with purchases from a morning of shopping. “So we have bought new clothes, cameras and cosmetics here — especially for cosmetics, we purchased brands that we cannot find at home, like Aesop and YSL.”
nytimes.com
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