China’s rising yuan rising no more?
Frederic J. Brown/AFP/Getty Images
Comments Email Twitter inShare1Eric Lam Sep 27, 2011 – 8:30 AM ET | Last Updated: Sep 27, 2011 9:03 AM ET
At this point, some kind of awful landing is all but expected in Europe, starting with a likely debt default in Greece and ending possibly with Italy sinking into the Mediterranean. And the United States is not looking so hot either, with most investors now just waiting to declare a recession in the world’s largest economy.
However, the other half of the equation involves the world’s developing economies, particularly China, and the expectation that their strong growth of the past few years will not only continue but keep the global economic engine from stalling.
As it turns out China is in the middle of trying to turn a hard landing of its own into a soft one, and the yuan appreciation we’ve all gotten so used to over the past year looks to be the first victim.
Diana Choyleva, economist with Lombard Street Research, suggests the picture has gotten a lot gloomier for Beijing now that the U.S. Federal Reserve is embarking on Operation Twist and will likely halt the yuan rise by early 2012.
“In the context of China’s ‘hard landing,’ Beijing’s inclination will be to halt the yuan’s rise, if not to devalue,” she said in a report Tuesday.
Of note, the yuan-dollar rate in domestic Chinese markets has “flatlined” over the past month and a half, suggesting Beijing is already spooked by fears of a global growth relapse.
So far this year, China has not had any real reason to halt the yuan’s advance. The country’s trade surplus has increased while a falling greenback has helped to control external inflationary pressures as China imports vast amounts of U.S. dollar-denominated raw materials.
However, export growth has faltered in the third quarter in line with a global slowdown, and the U.S. dollar is now rising at the expense of commodities. A devalued yuan would push the trade advantage firmly back into China’s court.
“China’s policymakers are likely to see growth worries overshadow their inflation concerns next year, pushing them to reverse their policy stance and halt their sterilisation efforts,” she said. “The temptation to go for ‘growth at all cost’ could be too difficult to resist next year given China’s leadership change in 2012.”
Frederic J. Brown/AFP/Getty Images
Comments Email Twitter inShare1Eric Lam Sep 27, 2011 – 8:30 AM ET | Last Updated: Sep 27, 2011 9:03 AM ET
At this point, some kind of awful landing is all but expected in Europe, starting with a likely debt default in Greece and ending possibly with Italy sinking into the Mediterranean. And the United States is not looking so hot either, with most investors now just waiting to declare a recession in the world’s largest economy.
However, the other half of the equation involves the world’s developing economies, particularly China, and the expectation that their strong growth of the past few years will not only continue but keep the global economic engine from stalling.
As it turns out China is in the middle of trying to turn a hard landing of its own into a soft one, and the yuan appreciation we’ve all gotten so used to over the past year looks to be the first victim.
Diana Choyleva, economist with Lombard Street Research, suggests the picture has gotten a lot gloomier for Beijing now that the U.S. Federal Reserve is embarking on Operation Twist and will likely halt the yuan rise by early 2012.
“In the context of China’s ‘hard landing,’ Beijing’s inclination will be to halt the yuan’s rise, if not to devalue,” she said in a report Tuesday.
Of note, the yuan-dollar rate in domestic Chinese markets has “flatlined” over the past month and a half, suggesting Beijing is already spooked by fears of a global growth relapse.
So far this year, China has not had any real reason to halt the yuan’s advance. The country’s trade surplus has increased while a falling greenback has helped to control external inflationary pressures as China imports vast amounts of U.S. dollar-denominated raw materials.
However, export growth has faltered in the third quarter in line with a global slowdown, and the U.S. dollar is now rising at the expense of commodities. A devalued yuan would push the trade advantage firmly back into China’s court.
“China’s policymakers are likely to see growth worries overshadow their inflation concerns next year, pushing them to reverse their policy stance and halt their sterilisation efforts,” she said. “The temptation to go for ‘growth at all cost’ could be too difficult to resist next year given China’s leadership change in 2012.”