(08-05-2022, 11:21 AM)sgbuffett Wrote:
The capital flight will accelerate because the US side is raising rates causing Yuan to plunge.
So China is stuck with a slowing economy. Reserve ratio cuts are not powerful enough and infrastructure spending results in misallocation.- High speed rails that are under utilised, roads etc but China has no choice but to go this route.
Many solutions are political in nature and cannot get done like cutting tariffs and unwinding the trade war.
Also unlike in 2008, when US and China had relatively good relations when both sides could coordinate an exit from crisis, should anything go wrong it will be harder this time.
Right now each side is just fixng its own problem in an uncoordinated manner.
I don't think that's the only reason, the CNY depreciation and so called capital flights is being ridiculously exaggerated by the western press as usual.
First off compared to other major trading currencies such as GBP, Euro and JPY, the CNY depreciation is relatively mild. The raising of US interest rates followed by USD appreciation and repatriation of highly liquid foreign denominated assets is an expected outcome that is not unique to China in any way.
Secondly, it is not entirely in China's interest to maintain the CNY at an elevated level compared to other foreign currencies, something which will definitely happen should it choose to maintain USD parity. Maintaining USD parity has significant repercussions on exports and inflation as well. Considering their CPI is relatively healthy while economic activity has been impeded by the global economic slowdown and COVID measures, letting the CNY depreciate mildly against USD does seem like a sensible choice.
The western press keeps arguing that China is in trouble and attempts to cite the fact it dares not adopt loose monetary policies and/or maintain CNY parity as evidence. This in itself is a false premise - Regardless of Federal Reserve actions, the PBOC has never given any indication in the past few years even in the midst of the Wuhan outbreak that loose monetary policy is their preferred way to generate economic growth.
All these China doomsday articles from Bloomberg/ CNBC/ WSJ appear to be predicated on a strawman generated by extrapolating their own government's actions. They are simply making assumptions that what their own US / European government have been doing is the "correct and standard" way and then concluding that anyone that does not follow their path is in trouble.
This narrative is rather comical as it is only 12 months ago that they were going on and on about China manipulating its currency to be artificially low to steal from the free markets, now suddenly a CNY drop is evidence of economic troubles and a strong USD is suddenly some tok kong thing.