Posts Tagged ‘currency manipulator’

Trump’s Currency Complaints Hit Unexpected Targets

February 17, 2017

Top-five trading partners China, Japan and Germany brush them off; Taiwan and Switzerland seem to be paying heed


Feb. 17, 2017 3:47 a.m. ET

HONG KONG—U.S. President Donald Trump’s accusations of currency manipulation appear to be reaching an audience he may not have primarily intended.

Mr. Trump vowed on the campaign trail to revive American manufacturing, in part by taking a hard line on Chinese trade practices and labeling the country a currency manipulator. Since taking office, the president has accused both China and Japan of consistently devaluing their currencies,…

Mr. Trump vowed on the campaign trail to revive American manufacturing, in part by taking a hard line on Chinese trade practices and labeling the country a currency manipulator. Since taking office, the president has accused both China and Japan of consistently devaluing their currencies , while his top trade adviser Peter Navarro has accused Germany of benefiting from what he termed the “grossly undervalued” euro .

All three countries, which rank among the U.S.’s top five trading partners, have brushed off the Trump administration’s claims.

“No one has the right to tell us that the yen is weak,” Japan’s finance minister Taro Aso told parliament on Wednesday, following last weekend’s meeting between Mr. Trump and Prime Minister Shinzo Abe . Japan hasn’t directly intervened in currency markets since 2011 following a major tsunami and resulting Fukushima nuclear disaster.

“The charge that Germany exploits the U.S. and other countries with an undervalued currency is more than absurd,” Jens Weidmann , the president of the German central bank, said earlier this month.

China hasn’t directly commented on Mr. Trump’s criticisms, but most analysts say Beijing recently has been propping up the yuan by selling foreign-currency reserves rather than looking to weaken it.

Still, some smaller economies look like they are taking notice, notably Taiwan and Switzerland. The U.S. Treasury found in October that both had engaged in persistent, one-way currency intervention, essentially by buying foreign currencies like the U.S. dollar and selling their own to maintain weak exchange rates.

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Analysts say the central banks of Switzerland and Taiwan are now stepping back from those activities, perhaps to avoid closer scrutiny from the Trump administration. The upshot: The Swiss franc has advanced nearly 2% against the U.S. dollar this year, while the new Taiwan dollar has surged 5.3%. Both have outperformed the euro and yen since the U.S. election in early November.

Taiwan’s central bank bought $500 million in foreign currencies in the fourth quarter, well below its quarterly average of more than $3 billion since 2012, according to Khoon Goh , head of Asia research at ANZ in Singapore, who said he suspects it is stepping back from “currency-smoothing operations.” The central bank said it doesn’t comment on currency policy.

For the first nine months of last year, the Swiss National Bank /quotes/zigman/1379668/delayed CH:SNBN +0.12% intervened heavily in currency markets to slow the franc’s rise, spending an amount roughly equivalent to its current-account surplus for the period, J.P. Morgan/quotes/zigman/272085/composite JPM -0.76% analysts note. Over the following four months, the scale dropped to around two-thirds of the surplus.

“It’s not an entirely fanciful suggestion that the SNB might be tapering intervention in order to the guard against the risk of being cited by the U.S. Treasury as a currency manipulator,” the analysts wrote in a note.

The Swiss National Bank declined to comment.

For the U.S. to label an economy a currency manipulator under the current law, it must have a large trade surplus with the U.S. and a hefty current-account surplus and persistently intervene in the currency in one direction. As of October, no economies met all three criteria.

Recent comments from officials in South Korea, which the Treasury has flagged for its hefty trade surplus with the U.S. and its current-account surplus, suggest they’re similarly eager to avoid U.S. ire, says Govinda Finn , senior analyst at Standard Life Investments in Edinburgh. The Korean won has surged 5.2% against the dollar this year.

But any gains in the Korean and Taiwanese currencies due to U.S. political pressure may not last, he said: “On a longer-term horizon, there’s a pretty strong case to say both of those currencies can and will weaken as the authorities look to support their economies.”

Jenny W. Hsu contributed to this article.

Write to Saumya Vaishampayan at

Yuan Pares Record Rally as Goldman Says Now’s the Time to Sell — The yuan is likely to weaken this year as capital outflows continue

January 6, 2017
January 5, 2017, 8:32 PM EST January 6, 2017, 3:53 AM EST
  • Offshore rate tumbles as much as 1.1%, most in a year
  • PBOC strengthens fixing less than forecasts from Mizuho, ANZ

What’s Triggering the Rally in the Yuan?


The offshore yuan pared its record weekly rally as China’s central bank raised its fixing less than projected and some analysts reiterated their bearish views on the currency.

The exchange rate fell as much as 1.1 percent to 6.8623 a dollar in Hong Kong, the most since this day last year, after a 2.5 percent surge over the past two sessions. Goldman Sachs Group Inc. advised clients that the best times to bet against the yuan have tended to be after interventions that flushed out bearish positions, or when China concerns were off traders’ radar screens.

Yuan short sellers were squeezed in Hong Kong this week after interbank borrowing rates soared, the dollar weakened and Bloomberg News reported that Chinese policy makers are preparing contingency plans to support the exchange rate. The move widened the offshore yuan’s premium over the onshore rate to 1.6 percent, the most since February last year. While borrowing rates in Hong Kong remained elevated on Friday, a broad recovery in the U.S. currency eased some of the pressure on bears.

“The offshore yuan is sinking because there is some recovery in the dollar, perhaps the unwinding of short-yuan positions has mostly been done, and it’s closing the gap with the onshore currency,” said Roy Teo, senior currency strategist at ABN Amro Bank NV in Singapore. The yuan is likely to weaken this year as capital outflows continue and the U.S. Federal Reserve increases interest rates, Teo said.

China’s central bank raised its daily reference rate by 0.92 percent to 6.8668 per dollar on Friday, following a 1 percent drop in a gauge of the greenback’s strength overnight. The offshore yuan was trading 0.9 percent weaker at 6.8537 per dollar as of 4:51 p.m. in Hong Kong, while the onshore rate slumped 0.6 percent. Friday’s fixing was weaker than Mizuho Bank Ltd.’s prediction of 6.8447 and Australia & New Zealand Banking Group Ltd.’s estimate of 6.8456.

The three-month yuan interbank rate in Hong Kong, known as Hibor, surged to a record high, while the overnight rate jumped 23 percentage points to 61 percent, the highest since last January’s cash crunch. Rising interbank rates can make some short positions prohibitively expensive.

The yuan is giving back some of its gains after a week that echoed the short squeeze in January of last year. That abrupt reversal marked the beginning of a nearly 5 percent rally lasting two months.

Chinese policy makers have several reasons to engineer a stronger or stable yuan in the short term. U.S. President-elect Donald Trump has pledged to label the country a currency manipulator on his first day in office, while the exchange rate came close to breaking through the psychologically-important level of 7 per dollar earlier this week. Policy makers also want to avoid a flood of capital outflows as citizens’ annual foreign-exchange quotas reset for the new year.

Goldman Forecast

Still, the analyst consensus suggests China will eventually let the yuan continue its descent. The exchange rate will fall to 7.16 per dollar by year-end before sliding to 7.3 the following year, according to the median of projections compiled by Bloomberg.

Goldman researchers see an even quicker retreat. The Chinese currency will probably drop to 7.3 per dollar by December, emerging-market strategists led by Kamakshya Trivedi in London predicted in a note dated Thursday.

Benjamin Fuchs, chief investment officer at the $2 billion hedge fund BFAM Partners (Hong Kong), said China’s moves to repeatedly tighten capital controls risk eroding confidence in its currency. The dollar’s advance against the yen and other currencies has also increased competitive pressure on China to let the yuan depreciate, he said.“We’re starting to see more and more of a negative cycle being created,” Fuchs said. China’s attempts to curb outflows are “just making people want to take money out quicker, and make companies change their behavior.”

— With assistance by Robin Ganguly, Justina Lee, and Tian Chen


 (Wall Street Journal)


China Faces Off Against World on Open Global Markets

December 9, 2016

Anniversary of China’s accession to World Trade Organization highlights global rift over Beijing’s economic policy

Donald Trump returned to Iowa triumphant Thursday, rallying in Des Moines not as an unconventional presidential candidate, but as the president-elect of the United States.

Trump drew a crowd of perhaps 6,000 supporters to Hy-Vee Hall for his thank-you tour rally, reveling in his 9-point Iowa victory and sharing the stage with Gov. Terry Branstad, his newly named ambassador to China.

“I’m here today for one main reason – to say thank you to the great, great people of Iowa!” Trump said as he took the stage. “You went out and pounded — and I mean pounded — the pavement. You organized your fellow citizens and propelled us to victories at the grassroots and every other level. We have a movement the likes of which this world has never seen before.”



Dec. 9, 2016 5:32 a.m. ET

China’s 15-year anniversary as a member of the World Trade Organization on Sunday threatens to trigger a clash with growing forces in the West that cast Beijing as an abuser of open global markets.

The anniversary marks Beijing’s eligibility for “market-economy status,” which would remove many risks of punishment when Chinese companies are accused of selling products below cost. But the issue is bringing to the fore mounting global frustration over China’s state-led economic policy.

Since joining the WTO on Dec. 11, 2001, China has leveraged the open markets the organization fosters to lift millions of people from poverty and catapult itself to become the world’s No. 2 economy. But Beijing’s critics say it has gamed the system by curbing access to its markets and marshaling massive state resources to compete against foreign companies.

“China wanted the advantages without meeting its obligations, and trade won’t work when it’s a one-way street like that,” said Rep. Sander Levin, the top Democrat on the House committee that overseas trade. “They went in with full knowledge and essentially began thumbing their nose.” Mr. Levin voted for legislation tied to China’s WTO accession but has since become a vocal critic of Beijing’s compliance.

Changing China’s market-economy status is dependent on individual countries declaring that they are changing the way they handle antidumping and other trade cases—something the Obama administration isn’t ready to do.

“It is a conversation that we are engaged in, but it is not ripe for us to change our protocols,” said Commerce Secretary Penny Pritzker said last month after talks with Chinese officials.

President-elect Donald Trump has threatened to declare China a currency manipulator and slap big tariffs on its hundreds of billions of dollars in annual exports, although some of his aides have played down those warnings as laying the ground for future negotiations. “They haven’t played by the rules, and they know it’s time they’re going to start,” Mr. Trump said at an Iowa rally on Thursday, naming “massive theft of intellectual property” and “product dumping.”

Mr. Trump’s comments and choice of advisers—including steel executives—suggest his administration will step up trade enforcement against China through the WTO as well as in antidumping and subsidy cases within the U.S., trade lawyers say. Trump representatives didn’t comment on the issue.


The European Commission, the EU’s executive arm, also isn’t ready to declare China a market economy. In November, the commission proposed a new formula to calculate antidumping duties.

In cases where it determines markets are distorted by state intervention, the commission would eliminate the concept of nonmarket economies and instead allow for high tariffs to be imposed on imports deemed to be priced below international-market levels.

“We are not declaring China a market economy status but we are reforming the system so as to make it country-neutral,” Cecilia Malmström, the EU’s trade chief said Wednesday.

Japan said this week it continued to view China as a non-market economy.

Beijing bridles at being a lightning rod for global angst over trade and unemployment and on Thursday renewed vows to take WTO countermeasures if it doesn’t receive market status.

“We are playing by the rules and you need to keep your promise,” Xue Rongjiu, a trade adviser to the State Council, China’s cabinet, said this month. “It’s unfair to blame China for your problems, which have resulted from bad management and operations.”

Economists say China generally abides by WTO rules, a system largely designed to address the movement of goods across borders, making it difficult to deny Beijing market-economy status over the long term.

But the rules are ill-equipped to handle China’s massive state companies, investment inequity, intellectual property issues, limited transparency and restricted access to new economic sectors like services, internet and the cloud, critics say.

“The WTO seems like a single-stroke engine in a jet-engine age,” said James McGregor,former chairman of the American Chamber of Commerce in China. “China has played into our open system with great skill.”

Free-trade advocates focus on Chinese state-owned entities, which are granted such benefits as preferential funding, free land, protected domestic markets and limited pressure to turn a profit, saying the system fuels debt and inefficiency that distorts global markets. President Xi Jinping has vowed to maintain the central economic role for state-owned firms.

Zak Fardi, founder of U.S. solar panel maker 1SolTech Inc., said China’s system victimized him. The Dallas-based company prospered until late 2011 when Chinese state-subsidized panels began flooding the U.S. market, he said. The Chinese sold panels at 40% below his production cost and offered customers multimillion-dollar lines of credit he was unable to match.

Panel makers petitioned for help, leading to punitive U.S. and European duties on imports of Chinese solar cells even as Chinese manufacturers denied competing unfairly. But by then the damage was done. Not only did Mr. Fardi’s business fail but dozens of Chinese solar makers did too after the subsidies sparked a competitive glut. “They kicked our butts,” Mr. Fardi said. “It was definitely dumping. It seemed very well organized.”

Shipping containers at a port in Qingdao in eastern China's Shandong province.
Shipping containers at a port in Qingdao in eastern China’s Shandong province. PHOTO: CHINATOPIX/ASSOCIATED PRESS

Aside from solar panels, China has used an array of state financing, subsidies and price cutting to secure globally dominant positions in disc drives and personal computers, saidDirkThomas, principal in Hong Kong-based Summit Partners, a tech advisory firm. Beijing is now setting its sights on mobile phones and semiconductors, he said. “It’s the same game over and over again,” said Mr. Thomas, who helps Chinese technology companies acquire assets overseas.

Beijing’s industrial policies are driving discontent to new levels, especially over excess Chinese production of steel, aluminum and other products. In the first half of 2016, 17 countries and regions launched 65 trade investigations against Chinese products, a two-thirds increase year-over-year, according to Chinese data. Beijing has pledged to cut 150 million tons of steel production by 2020, but industry analysts say that would reduce only about a third of China’s 30% excess capacity.

A new source of concern to foreign companies is the “Made in China 2025” blueprints released last year that call for indigenous development and import substitution in many strategic industries where Western companies have an edge, including semiconductors.

“The global system of trade is under siege and has been challenged by the biggest new kid on the block, China, not playing by the rules,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “China points at growing protectionism of the West, but they only have themselves to blame.”

Calls also are rising to tighten curbs on Chinese technology investments in the U.S. in response to investment bans Beijing has imposed, often on national security grounds.

“With [China’s] expansive definition, national security could be your local ballet school,” said Claire Reade, a former U.S. Trade Representative negotiator and now a trade lawyer.

This month, President Barack Obama blocked on national security grounds the proposed acquisition by a Chinese company, Fujian Grand Chip Investment Fund, of German chip maker Aixtron SE, which has operations in California.

In response, a Chinese Foreign Ministry spokesman said this week that Beijing hopes Washington will “cease making groundless accusations” against Chinese companies.

Write to Mark Magnier at and William Mauldin at


China’s foreign reserves fall again in November even as Beijing tightens screws on capital outflows

December 8, 2016

Reserves shrank by US$69.1 billion last month to hit US$3.052 trillion, central bank says

By Frank Tang
South China Morning Post

Thursday, December 8, 2016, 5:20 a.m.

The fall in China’s foreign ­exchange reserves accelerated in November even though Beijing is gradually closing the door on ­capital outflows.

The larger-than-expected decline in the world’s biggest stockpile of foreign exchange exposed the flaws in Beijing’s current ­approach of selling state reserves to support the yuan and was very likely to force the authorities to take a stricter line on outbound investment and payments, analysts said.

The reserves shrank by US$69.1 billion last month to US$3.052 trillion, according to data released by the People’s Bank of China on Wednesday. The mainland has lost nearly US$1 trillion worth of reserves since the figure peaked in June 2014.

November’s drop, the largest monthly fall since January, came as the US dollar index hit a 13-year high following Donald Trump’s victory in the US presidential ­election.

Tim Condon, chief Asia economist at ING in Singapore, said the rapid fall was undermining the Chinese government’s plan of a gradual and orderly decline.

“The authorities will respond by tightening capital controls and stabilising the daily midpoint, which they have done in past episodes of market turbulence,” Condon said.

In a joint statement released on Tuesday, the central bank and the National Development and Reform Commission, the state’s economic planning agency, warned of “irrational investment” in foreign properties, hotels, cinemas, entertainment and soccer clubs.

Documents obtained earlier by the South China Morning Post show capital outflow controls are already in force involving forex clearance for outbound investment of more than US$5 million, plus stricter reviews in place over very large deals. Both outbound investment and these mega deals are set to limit the speed and size of capital flow.

“The recent control measures are pre-emptive to prevent capital outflow pressure from rising on the US Federal Reserve’s highly likely interest rate rise in December,” said Zhu Qibing, chief macro analyst at mainland brokerage CITIC Securities International.

The fall in the value of the yuan, the reduction in foreign exchange reserves and the government measures to control outbound investment have all come at once.

They have dealt a blow to Beijing’s ambitions to make the yuan an international reserve currency along with the US dollar, the euro, the British pound and the Japanese yen, which together comprise the special drawing rights basket of the International Monetary Fund.

Beijing’s efforts to calm market concerns about the yuan’s value, or breaking the one-way bet on the yuan’s depreciation, have so far achieved only limited success, if any at all.

Trump’s Chinese Currency Manipulation

December 8, 2016

His tweets are driving the yuan down against the dollar.

The wall Street Journal
Dec. 7, 2016 6:59 p.m. ET


Donald Trump says he’ll declare soon after he takes office that China is a currency manipulator because it is devaluing the yuan against the dollar. He may want to rethink that. These days China is intervening in the capital markets to prevent the yuan from going into free fall. The currency is now close to an eight-year low, down 12% from its peak in January 2014.

One irony is that Mr. Trump is contributing to the yuan’s fall with his critical tweets about China, as traders see economic trouble ahead. The Chinese government has tried to slow the yuan’s fall by selling dollars—in essence manipulating the currency in the opposite direction of Mr. Trump’s accusation. As a result, China’s reserves have shrunk to $3.05 trillion in November from $3.99 trillion in June 2014.

Even Washington’s Peterson Institute, a weak-dollar outfit that has long accused China of keeping the yuan artificially low, now admits that the currency is overvalued and capital flight from China is a problem. Chinese companies and individuals are trying to move money out before the yuan falls further. Bank of America Merrill Lynch estimates that $113 billion left the country in the third quarter, up from $99 billion in the second.

Beijing has responded by tightening capital controls. Companies that could move $50 million without much fuss now face a cap of $5 million. Banks face increased scrutiny, and large overseas acquisitions have been put on hold. These measures will help stem the capital outflow, but the underlying problem is that China’s lending and investment spree since 2008 hurt competitiveness by creating overcapacity.

The prices that companies can charge for their products has fallen, driving up the real rate they pay on debt. Wages continue to rise because the workforce began to shrink in 2012. Company profits overall are stagnant, and many state firms are losing money.

Many governments in this predicament would depreciate their currencies quickly to gain a trade advantage. But China’s leaders know this would be self-defeating in an economy of its size. The weak global economy can’t absorb a surge in Chinese exports, and the political backlash could lead to a wave of protectionism.

Beijing also knows that China’s spectacular growth after 1994 was underpinned by a stable yuan, not a weak one. That stability encouraged China’s most productive citizens to invest at home, rather than stashing wealth abroad.

China responded to American political pressure in the 2000s by revaluing the yuan—from 8.28 to the dollar in 2005 to a peak of 6.03 in 2014. (It’s now 6.88.) But that arguably made the yuan overvalued, with speculators betting that the yuan would keep rising. Defending the yuan meant keeping interest rates artificially high, slowing domestic growth.

Hence Beijing’s preferred course of action since August 2015 has been to allow market forces to gradually erode the yuan’s value. As long as the pace is slow, traders can’t make enough of a profit on shorting the currency to cover their cost of borrowing. Slow devaluation is hard to pull off, and it can easily become a stampede.

China will face more pressure to devalue in the year ahead as the U.S. Federal Reserve raises interest rates and the dollar strengthens. Mr. Trump’s election is accelerating that reckoning, with the paradoxical effect of making the yuan even weaker. Stronger U.S. growth from Mr. Trump’s policies would also increase the demand for Chinese goods, and thus the U.S. trade deficit with China is likely to increase too. Domestic companies couldn’t possibly meet the demand for products if U.S. growth hits 3% or 4% a year.

All of this shows how complicated it will be for Mr. Trump to reset what has become an interdependent U.S.-China economic relationship. Mr. Trump can have faster U.S. growth or a smaller trade deficit, but he’s unlikely to have both during his Presidency. His choice Wednesday for U.S. Ambassador to China, Iowa Governor Terry Branstad, understands this and is an advocate of U.S.-China trade.

If Mr. Trump wants a new deal with China, our advice is to focus on negotiating a pact for stable exchange rates while aiming to change abusive Chinese practices against U.S. companies, such as intellectual-property theft, rather than slap a 45% tariff on Chinese goods. Meanwhile, if he keeps tweeting, the Chinese may accuse him of talking down the yuan.

China says Trump shows his lack of diplomatic skills and common sense with tweets

December 5, 2016

Trump’s off-the-cuff remarks do not auger well for Sino-US ties in the coming year, Chinese analysts say

By Liu Zhen and Wendy Wu
South China Morning Post

Donald Trump’s latest tweets accusing China of currency manipulation and militarising the South China Sea show the future US president’s lack of diplomatic skills, patience and economic common sense, according to Chinese analysts.

In an apparent defence of his protocol-breaking phone conversation with Taiwanese President Tsai Ing-wen on Friday, the US president-elect tweeted on Sunday: “Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the US doesn’t tax them) or to build a massive military complex in the middle of the South China Sea. I don’t think so!”

Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into..

their country (the U.S. doesn’t tax them) or to build a massive military complex in the middle of the South China Sea? I don’t think so!

While it’s understandable that Trump is trying to deliver a message that, whatever he does, he doesn’t need to inform China or care about what Beijing likes, he is neglecting the possible ramifications of his actions and words on Sino-US relations, analysts said.

Zhang Yuquan, a researcher of American studies at Sun Yat-sen University in Guangzhou, said Trump will have a steep learning curve in diplomacy given his lack of experience in the area, putting Sino-US ties on a bumpy start in 2017.

He added that “without doubt” tensions between the two countries will be very high as Trump settles in to his presidency, Zhang.

Jin Canrong, a professor of international relations at Renmin University in Beijing, said Trump’s tweets reflected his bellicose personality and intolerance of criticism from the Democrats, the White House and China, even though the Chinese government has been largely restrained since he was elected.

“Trump is still not yet in office yet, so the Chinese government can’t react too much to him, but China can take certain action against Taiwan,” Jin said.

China H-6 bomber Scarborough Shoal, the Philippines

Already, Foreign Minister Wang Yi has publicly blamed Taiwan for the phone call.

Meanwhile, Trump’s comments blaming China for undervaluing the yuan were simply contrary to the facts, economists argued.

“If China’s monetary authority suspended intervention, the yuan would weaken further. China is not trying to devaluate the yuan but to prevent it from depreciating more,” said Zhao Yang, chief China economist at Nomura.

Trump’s views on China’s currency was “not in line with reality”, so it was better to leave the issue to professionals instead of politicians.

“The People’s Bank of China and the Federal Reserve should have communicated on the currency issue,” said Zhao.

 Ben Bernanke

Former Fed Chairman Ben Bernanke said over the weekend that China did not meet the definition of currency manipulator, and the US Treasury Department under the Obama administration declined to label China as one.

“Trump treats politics as a businessman and fails to consider trade problems as part of a larger pattern, lacking long-term perspective and ignoring the benefits to US importers when he talks up possibility of trade barriers,” said Chen Long, an economist with the Bank of Dongguan, a bank in the Pearl River Delta.


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Donald Trump’s latest Twitter attack on Beijing has filtered through to China. Photograph by Greg Baker, AFP, Getty Images

“In everything he is better than Clinton,” commemorated Shen Dingli, a professor of international relations from Shanghai’s Fudan University. “We must welcome him.”

On Monday, as news of Trump’s latest Twitter attack on Beijing filtered through to China, where the social networking site is blocked by Communist party censors, that tune had changed.

“Ignorant. Distasteful,” snapped Shen when asked for his reaction to the president-elect’s 277-character outburst and his incendiary decision to engage with Taiwanese president Tsai Ing-wen on the telephone last Friday.

Shen, the deputy head of Fudan University’s institute of international affairs, said he had been outraged by Trump’s 10-minute call with the leader of Taiwan, a self-ruled island which China considers a renegade province.

“If he continues to call Taiwan a country we [should] sever relations with him,” the academic fumed. “I don’t know what the government would do [but] I know what I would do: I will close our embassy.”

Shi Yinhong, a Renmin University foreign policy expert, agreed the chances of a bitter and messy rupture between the US and China had increased following Sunday night’s tweets in which Trump again lashed out at Beijing’s alleged currency manipulation and construction of “a massive military complex” in the South China Sea.

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China in a losing battle to maintain an orderly depreciation of the yuan as investors bail out, driving the currency down — ‘The Trump Effect’?

November 24, 2016

China is facing an uphill battle to maintain an orderly depreciation of the yuan as investors pile up bearish bets against the currency outside the mainland.

The gap between the yuan’s value against the dollar in the domestic market and in what is known as the offshore market in Hong Kong, has been widening in recent days. On Wednesday, this so-called spread reached 0.0333, its widest since the beginning of October (apart from the day after the U.S. election), although it narrowed a touch on Thursday.

While the Chinese authorities strictly limit the way the yuan trades at home, it can be bought and sold more freely in Hong Kong. But its value against the dollar is usually about the same in both markets.

The widening gap now is complicating the central bank’s strategy of letting some air out of the currency at a pace Beijing dictates. The two yuan markets at home and in Hong Kong often feed off each other. Moreover, a weaker yuan offshore could encourage more Chinese businesses and individuals—the mainstay of the mainland market—to seek to convert their currency into dollars, potentially adding downward pressure on the domestically traded yuan.

China has tolerated a weaker yuan since early October, right after its entry into the International Monetary Fund’s elite group of reserve currencies, acknowledging that a cheaper currency is the price of using easy money to prop up the economy.

The pace of depreciation has quickened since Donald Trump’s surprise U.S. presidential-election win sent the greenback soaring and emerging-market currencies tumbling. The yuan is down 6.2% against the dollar this year in onshore markets, reaching 6.9152 against the dollar on Thursday, with more than a third of the drop in the past two weeks.

The People’s Bank of China is unwilling to let the currency slide too far, too fast, for fear that might lead to destabilizing capital flows out of the country.

Investors in offshore markets have, though, been pounding the yuan weaker, in the apparent belief that the central bank may struggle to control the pace of its decline.

“The PBOC may intervene” to shore up the yuan, said Prashant Singh, a senior portfolio manager at Neuberger Berman in Singapore. But he said he expects the Chinese currency to fall further because of the gloomy outlook for global trade and the diverging economic trajectories in the U.S. and China.

“Central-bank-led interventions are typically temporary in nature,” Mr. Singh added. “The fundamental factors still point to weakness.”

Already, in the past week, some state-owned banks—which often act as proxy for the People’s Bank of China—have sold dollars to support the yuan after it dropped to its lowest level against the dollar in eight years onshore, traders say.

The central bank has also been setting the yuan’s daily official rate against the dollar, known as the “fix,” somewhat stronger than implied by the greenback’s strength against other global currencies in recent days, according to analysts, indicating its desire to avoid too sharp of a decline. The yuan hasn’t fallen as much against the dollar as have other currencies such as the yen, the euro and the Korean won recently.

The PBOC didn’t respond to requests for comment.

Earlier this year, when the gap between the yuan’s value at home and in Hong Kong also widened, the Chinese central bank directed state-owned banks to buy large quantities of yuan in the Hong Kong market, sending overnight borrowing costs to elevated levels that effectively prohibited investors from wagering against the currency.

This time around, however, short-term overnight borrowing costs in Hong Kong have remained around levels that analysts consider normal, suggesting little intervention offshore.

We don’t need to worry too much about the short-term depreciation of the yuan.

—Yu Yongding

One factor that might have limited China’s ability to intervene more aggressively, analysts say, is its shrinking foreign-exchange reserves. The stockpile, still the world’s largest of its kind, fell to $3.12 trillion last month, its lowest since 2011. That compares to a record $4 trillion in June 2014.

Some analysts within China, including prominent economist Yu Yongding, are now urging the central bank to adopt a more flexible exchange-rate regime to help the yuan find its true market level.

The costs of intervention, they say, have become too high and could encourage capital flight. They have called on Beijing to take the step before Mr. Trump takes office in January: The New York businessman has pledged to label China a currency manipulator and to slap higher tariffs on Chinese goods.

“We have capital controls as the last line of defense,” Mr. Yu wrote in an article published in state media this week. “We don’t need to worry too much about the short-term depreciation of the yuan.”

Write to Lingling Wei at and Saumya Vaishampayan at


Tensions with allies rise, but U.S. sees improved China ties

November 4, 2013

A Chinese man adjusts a China flag before a news conference attended by Chinese Foreign Minister Yang Jiechi and U.S. Secretary of State Hillary Clinton at the Great Hall of the People in Beijing September 5, 2012. REUTERS/Feng Li/Pool

A Chinese man adjusts a China flag before a news conference attended by Chinese Foreign Minister Yang Jiechi and U.S. Secretary of State Hillary Clinton at the Great Hall of the People in Beijing September 5, 2012.

Credit: Reuters/Feng Li/Pool

By Paul Eckert

WASHINGTON |          Sun Nov 3, 2013 6:15am EST

WASHINGTON (Reuters) – With ties between Washington and many close allies strained because of eavesdropping revelations and differences over U.S. policies in the Middle East, the Obama administration can take some comfort from an improvement in ties with China.

A year after China’s President Xi Jinping took over the helm of the country’s ruling Communist Party, senior U.S. officials say they see increased cooperation on a range of issues from climate change to North Korea’s nuclear weapons ambitions. They also regard greater bilateral military contacts as an important safety valve if there are any potential flare-ups.

On the economic front, Washington is focused on China’s November 9-12 Communist Party conclave where Xi’s blueprint for making the world’s second-largest economy more open is expected to be unveiled.

Xi’s administration already has spawned optimism with an agreement to reopen bilateral investment treaty talks and a pilot free trade zone in Shanghai that augurs well for deeper reforms to address Chinese investment and trade barriers. Both could help dent the $300 billion annual U.S. trade deficit with China.

Not all is rosy. Serious fault lines remain over issues that have long vexed the Sino-U.S. relationship, such as human rights. Western experts and Chinese activists are concerned that China’s record on human rights may be worsening under Xi, who became China’s president in March, given there have been crackdowns on lawyers, activists and Internet opinion leaders.

Potential discord also lurks in China’s recent increasing recourse to what its critics call gunboat diplomacy in maritime territorial disputes with Asian neighbors, including U.S. allies such as Japan and the Philippines.

But officials from both countries say they are committed to what China calls a “new model of major country relations” – a Xi mantra that aims to minimize Sino-U.S. rivalry as China’s global power grows.

To Washington, the concept means “there is room on planet Earth for a rising, strong, stable, prosperous China and a United States that continues to serve as the champion of a liberal, democratic, free-market and rules-based system,” said Daniel Russel, the State Department’s top Asia diplomat.

Washington and Beijing intend to “avoid a mechanistic dynamic in which a rising power and an enduring power were inevitably destined for conflict,” he added.

The most common concrete example U.S. officials give of a better working relationship is North Korea, whose nuclear weapons and ballistic missile programs are seen as one of Asia’s most serious security threats.

Washington has long sought to convince Beijing to do more to rein in Pyongyang, a Chinese ally since the Korean War. North Korea’s nuclear test in early 2013, the latest of three since 2006, was accompanied by threats of nuclear attack on the United States and South Korea.

“We’ve seen (China) be more forward-leaning in applying pressure on the North Koreans,” said Ben Rhodes, Obama’s deputy national security adviser for strategic communications.

“That’s in part because the cycle of provocation that was taking place in the spring was concerning to them because it was destabilizing the region … and ultimately it was not consistent with their own interest,” he told Reuters.

China, often criticized by the United States and its allies for weak enforcement of U.N. Security Council sanctions on the North, last month published a detailed list of technologies and goods banned from export to North Korea because of their potential use in weapons of mass destruction.


The narrowing of differences on North Korea was a key outcome from Xi’s informal summit with President Barack Obama last June in Rancho Mirage, California – a desert retreat that allowed the two leaders to meet for eight hours over two days.

That informal summit, mainly designed as a trust-building exercise, also produced an agreement to reduce the use of greenhouse gases and to launch a bilateral working group to hold regular discussions on cyber-security.

“The U.S. and China are cooperating not on boutique projects, not on off-Broadway, where it doesn’t really matter, but on priority, critical issues that genuinely matter to both of our people and genuinely matter to the region and the world,” said Russel, who attended the summit, in an interview.

In early 2012, when Xi was China’s vice president, he toured the United States as a guest of U.S. counterpart Joe Biden, visiting a small town in Iowa where he did a brief home stay in 1987, as well as Los Angeles and Washington.

The Washington trip included a visit to the Pentagon, which helped set up a packed 2013-14 calendar of exchanges between the two countries’ militaries. Military-to-military ties have long been the weakest link between the two powers.


U.S.-China ties have warmed but then cooled in the past, and analysts warn that Xi’s agenda may only start to become clearer after this month’s Communist Party Central Committee Plenum sees him put his full stamp on Chinese policy.

On economic policy, Americans see room for optimism, based on Xi’s record since the 1990s as a business-friendly party and government leader overseeing roaring economies in Shanghai and the vibrant coastal provinces of Fujian and Zhejiang.

“Everything about his past where he served before in China indicates that there are reasons to be optimistic that he will take a more pro-market approach than his predecessor,” said Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai and a former U.S. diplomat in China.

The U.S. Treasury on Wednesday said China was not a currency manipulator and had allowed the yuan to appreciate 12 percent against the dollar since June 2010, while adding that the Chinese currency still appears undervalued. But in a semiannual report to Congress, the criticism of China was muted and less prominent than an attack on Germany, which was accused of hampering economic stability in Europe and hurting the global economy because of its focus on exports rather than boosting domestic demand.

On human rights and regional security, however, there are more question marks.

A party directive called Document No. 9, believed to reflect Xi’s beliefs, makes it a taboo to discuss publicly “Western notions” such as constitutional rule, universal values, press freedom, judicial independence and civil society.

In less abstract terms, China’s widening crackdown on bloggers, lawyers and activists has seen the detention or arrest of scores if not hundreds of people.

Obama, while not dropping the human rights issues, appears to have decided not to turn it into a make-or-break issue for Sino-American relations.

Xi has broken with Beijing’s traditionally reactive and defensive foreign policy, said Stephanie Kleine-Ahlbrandt of the U.S. Institute of Peace. She sees Xi testing U.S. allies and pushing back against Obama’s decision to shift diplomatic and security attention to Asia.

“Xi Jinping has come in and essentially pivoted on a dime and is now the first to really embrace China’s role as a ‘great power’ and he’s making foreign policy with a great power mindset,” she said.

U.S. officials say they do not expect Beijing to escalate its maritime disputes with Japan or other smaller neighbors because it would risk harming China’s economic growth.

“If Xi Jinping wants to realize the goal of the Chinese dream, of becoming a middle-class country by 2049, the 100th anniversary of the PRC, they’re going to want to do that without any kind of disruption or distraction,” said a senior U.S. official.

(Reporting by Paul Eckert; Editing by Martin Howell and Jackie Frank)

U.S. Treasury Critical Of Economic Situation in Germany, China

October 31, 2013

The US has criticised Germany’s economic policies, saying that its export-led growth model is hurting the eurozone and the wider global economy.

From the BBC

In its biannual report, the US Treasury said that domestic demand growth in Germany had been “anaemic”.

It also reiterated its view that the Chinese yuan, continues to remain “significantly undervalued”.

The report has criticised Chinese policy before, but criticism of German economic policy is rarer.

“Germany’s anaemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment,” the Treasury said.

“The net result has been a deflationary bias for the euro area as well as for the world economy.”

‘Bit strange’

Germany is eurozone’s largest economy has been one of its key drivers of growth in recent years.

Its importance to the 17-nation bloc has only increased since the development of the region’s debt crisis, which has impacted other bigger economies such as Italy and Spain.

It has been one of Europe’s stronger economic performers and its exports prowess is seen as one of its key strengths.

The country narrowly avoided recession earlier this year, but GDP in the second quarter of 2013 was driven up by demand from both consumers and businesses.

Analysts said that while Germany could benefit from boosting domestic demand, the criticism levied on its policies was unfair.

“I think this is a bit strange,” Tony Nash, vice president at IHS, told the BBC. “The eurozone has to get growth from somewhere and Germany is the most likely place for that to happen.”

“And it is better for eurozone to have a highly concentrated, efficient and skilled export powerhouse in Germany than not have any major engine of growth,” he added.

Yuan concerns

In recent years, the US and many other economies have alleged that China tries to keep the value of its currency artificially low.

They say that, by doing so, Beijing gives an unfair advantage to its exporters as an undervalued currency makes its good cheaper to foreign buyers.

For its part, China has been looking to loosen its grip on the currency as it looks to push for a more global role for the yuan.

But Beijing has maintained that a sudden an sharp appreciation in the value of the yuan will hurt its overall economy.

The yuan has risen nearly 12% against the US dollar since June 2010.

While the Treasury acknowledged that the yuan had been rising, it said the appreciation was “not as fast or by as much as is needed”.

“On the other hand, the evidence that China has resumed large-scale purchases of foreign exchange this year, despite having accumulated reserves that are more than sufficient by any measure, is suggestive of actions that are impeding market determination and a currency that is significantly undervalued,” it added.

However, the report did not label China as a currency manipulator.

Japan Has Replaced China as Top U.S. Debt Holder

October 18, 2012

China is poised to lose its place as the U.S.’s biggest creditor for the first time since the height of the financial crisis, blunting one of Mitt Romney’s favored attacks in the presidential campaign.

Chinese holdings of Treasurys fell 0.2 percent this year through July to $1.15 trillion, the latest government data show. Japan, a stronger ally of the U.S., raised its stake by 5.6 percent to $1.12 trillion, on pace to top the list of foreign creditors by November. The Treasury Department will release its tally of international capital flows for August Tuesday.

The Daily Star

While Romney promises to label China a currency manipulator if he wins the election and says President Barack Obama has been too lenient in trade disputes, foreign demand is a reason Treasury yields remain close to record lows, reducing the cost of credit for the government, companies and individuals. Whoever wins Nov. 6 will depend on both nations to finance a budget deficit that surpassed $1 trillion for a fourth year in fiscal 2012.

“We would still have a great need for overseas money,” said Dominic Konstam, head of interest-rate strategy in New York at Deutsche Bank AG, one of the 21 primary dealers that trade with the Federal Reserve.

“Whatever deficit we’re running, we’re going to supply a lot of Treasurys and someone’s going to buy them, and if it’s not China it will be someone else.”

The Republican candidate has targeted China in his campaign and said on his first day in the White House, he would have the Treasury list the nation as a currency manipulator, paving the way for more import duties.

“They’ve artificially held down the value of their currency, and by doing that the prices of their goods are artificially low,” Romney said Sept. 26 in a campaign speech in Bedford Heights, Ohio. “They must not steal jobs.”

Romney campaign ads mentioning China ran 29,317 times in the 30 days ending Oct. 8, according to New York-based Kantar Media’s CMAG, which tracks political advertising. One Romney ad alleges “China is stealing American ideas and technology.”

Obama started a task force this year to identify unfair trade practices. In July, the U.S. filed a complaint with the World Trade Organization accusing China of imposing unfair duties on U.S. car exports and followed up last month, charging the nation illegally subsidized exports of vehicles and auto parts. Last week, the administration issued anti-dumping duties of as much as 250 percent on solar products imported from China.

“I understand my opponent has been running around Ohio claiming he’s going to take the fight to China,” Obama said at a Sept. 17 campaign event in Columbus, Ohio.

“This is a guy whose experience has been owning companies that were called pioneers of outsourcing jobs to countries like China,” Obama said, referring to Romney’s leadership at Bain Capital LLC, the private-equity firm, which invested in companies that moved work to China. “Ohio, you can’t stand up to China if all you’ve done is send them our jobs.”

Obama and Romney face off again at 9 p.m. at Hofstra University in Hempstead, New York, in a town-hall-style debate. The race was too close to call in a Gallup poll of about 3,050 registered voters taken Oct. 5-11, with the difference in support between the candidates within the two-percentage-point margin of error for the survey.

The U.S. hasn’t yet labeled China a currency manipulator in the Treasury Department’s twice-yearly reports on the foreign-exchange policies of U.S. trading partners. The yuan appreciated to 6.2580 per dollar Monday, the strongest since policymakers united official and unofficial rates in 1993.

The U.S. on Oct. 12 delayed its report on the exchange-rate policies of trading partners including China until after a meeting of the Group of 20 finance ministers and central bank leaders next month, the Treasury said on its website. The U.S. published the last assessment May 25. It didn’t give a date for the next report.

Foreign ownership of U.S. debt is a sensitive topic among politicians, who raise concern that sales by overseas creditors would depress bond prices and drive up yields. They also point to the buying as a result of the trade deficit.

Neither has been an issue in the past year as traders sought the relative safety of Treasurys. Investors offered to buy a record $3.17 for each dollar of the $1.68 trillion of debt sold in 2012, compared with the previous high of $3.04 set in 2011, according to data compiled by Bloomberg.

The benchmark 10-year Treasury note yielded 1.68 percent as of 8:55 a.m. in London from 2.25 percent 12 months earlier. The yield dropped to a record 1.38 percent July 25, and has averaged 3.70 percent during the past decade.

The U.S. runs a trade deficit with Asia’s two biggest economies. Imports from Japan exceeded U.S. exports to that country by $52.6 billion this year through August and the trade deficit with China totaled $203.1 billion.

If Japan does become the top foreign holder of U.S. debt, politicians may have one less campaign weapon.

China surpassed Japan as the world’s second-biggest economy in 2010 and is now the biggest consumer of coal, copper, iron ore and aluminum. Chinese demand has helped spur a 90 percent gain in the Standard & Poor’s GSCI index of 24 commodities since the start of 2009.

Huawei Technologies Co. and ZTE Corp., China’s two largest phone-equipment makers, provide opportunities for Chinese intelligence services to tamper with U.S. telecommunications networks for spying, said a congressional report Oct. 8.

The House Intelligence Committee report said the companies failed to cooperate with a yearlong investigation and to adequately explain their U.S. business interests and relationship with the Chinese government.

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