Chinese trade figures released yesterday showed exports exploding by 48.5% in May over the year before, way ahead of estimates. China recorded a huge $19.5 billion surplus, which was dramatically higher than the $1.7 billion recorded in April and the slight deficit in March.
Imports rose 48.3% over the same month last year. After taking into account calendar adjustments for the number of working days, China said that exports had risen 45.3% in May from a year earlier and were up 10.9% from April.
In direct trade with the U.S., China's surplus expanded to $19.31 billion in April from $16.90 billion in March, stoking political pressure on Beijing to accelerate appreciation of the Renminbi. China has been very reluctant to heed U.S. pressure despite seeming to send signals that it would agree to adjustments in its currency since the beginning of 2010.
Domestically, the Commerce Department said the U.S. deficit in international trade of goods and services increased 0.6% to $40.29 billion from a revised $40.05 billion the month before. Exports fell by $813 million, while higher oil prices helped to drive imports up by $1.61 billion.
Trade has been one of the few strengths in the U.S. economy during the recent recession, but has now become a drag on the recovery as imports have outpaced exports. The recently ballooning deficit subtracted 0.66% from Gross Domestic Product (GDP) during the first quarter.
The Treasury has been pursuing diplomacy with Beijing to allow the Renminbi to appreciate, but Treasury Secretary Tim Geithner told Congress yesterday that he had no idea when that might happen. Geithner, confident that a change in Chinese policy was imminent last March, now has signalled that he shared much of Congress's frustration and suggested that China needed to be aware that the U.S. was close to legislation.
Charles Schumer, a senior Democratic senator, vowed to press ahead with legislation to punish China if Beijing did not increase the value of the Renminbi.
The Renminbi has been pegged to the Dollar for nearly two years but has appreciated nearly 20% against the Euro since last November. Given the importance of the European market to China, the Renminbi’s sharp appreciation relative to the Euro provides China with an opportunity to begin the process of allowing its currency to fluctuate within a wider band.
The de-facto rule was that the rate of appreciation would not exceed 6-7% a year. As pressure has built over the past two years, market participants have been speculating that the needed adjustment is much larger than a gradual appreciation of 6 to 7%. Still, Beijing remains adamantly against any major or sudden adjustments and reluctant to embark once again on a gradual appreciation.
In times of extreme financial distress, such as The Great Depression, free trade becomes one of the first casualties. While it is virtually universally recognized that trade barriers help no one except for the industries protected, they become more politically popular as workers fear that "unfairly" priced imports will cost them their jobs. China is especially sensitive to the repercussions of high unemployment domestically, which will only get worse if exports suffer. Thus, a resolution to this issue is neither likely to be immediate nor sufficient to address growing U.S. outrage.
Marko's Take
Some great sites we like: http://www.lemetropolecafe.com/, http://www.shadowstats.com/, http://www.aegeancapital.com/, http://marketviews.tv/, http://www.goldpennystocks.com/, and http://www.youtube.com/markostaketv.
Showing posts with label Renminbi. Show all posts
Showing posts with label Renminbi. Show all posts
Friday, June 11, 2010
Thursday, April 15, 2010
China Overheats While Currency Tensions Remain
China, a country rapidly ascending into the global center stage, is now showing signs of a rapidly overheating economy. It appears that Beijing must be taking plays out of "The Maestro", Alan Greenspan's book, as its real estate market appears to be in the midst of a bubble accompanied by double digit growth in the economy.
Government figures released yesterday showed urban housing prices in March rose 11.7% during the previous 12 months, up from 10.7% the month before and the biggest increase since the index began nearly 5 years ago.
The figures released on Wednesday by the National Bureau of Statistics did suggest some cooling in demand for housing, as the 35.8% year-on-year increase in sales for the first quarter were less extreme than the 50% gain experienced at the end of last year. The data series is showing extreme volatility. Separate figures prepared by a private consulting firm indicated housing sales exploded in March by 90% versus February, despite sizable declines in the two prior months.
The Chinese economy grew at an 11.9% rate in the first quarter from a year ago, confirming Beijing's rapid recovery from the global economic crisis but raising new concerns about the risks of overheating.
The economy grew at its fastest rate in nearly 3 years and more quickly than economists had expected. The pace of growth puts new pressure on Beijing to consider tougher tightening measures, including appreciation in the exchange rate and increasing interest rates.
In spite of rising fears of overheating, consumer price inflation dipped to 2.4% last month, from 2.7% in February. However, at the producer level, inflation continued to accelerate, increasing from 5.4% to 5.9% in March.
The government has already taken some steps to reduce the stimulus it is injecting into the economy, including much tighter control over bank lending. However, concerns about potential inflation come at a time of growing international pressure to abandon China’s currency peg against the U.S. Dollar. Federal Reserve Chairman Ben Bernanke has called for a more flexible Renminbi, saying it would help keep China's inflation from accelerating further.
Asian tiger Singapore reset the band in which its currency trades and said it would allow gradual appreciation. This was designed to calm its booming economy, which grew at an annualized rate of 13.1% in the first quarter.
Political consideration continue to be the wild card. Currency markets have been volatile as recent pressure from the U.S. over the Renminbi peg have been met with resistance since the Chinese do not want to be seen as caving to pressure.
Complicating the situation further is the growing worldwide desire for sanctions on Iran. China is seen as critical for a successful diplomatic effort and the United States must tread lightly in order to secure Beijing's
support.
Marko's Take
Please visit our new YouTube video on the Legality Of The Personal Income Tax. The video can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
Government figures released yesterday showed urban housing prices in March rose 11.7% during the previous 12 months, up from 10.7% the month before and the biggest increase since the index began nearly 5 years ago.
The figures released on Wednesday by the National Bureau of Statistics did suggest some cooling in demand for housing, as the 35.8% year-on-year increase in sales for the first quarter were less extreme than the 50% gain experienced at the end of last year. The data series is showing extreme volatility. Separate figures prepared by a private consulting firm indicated housing sales exploded in March by 90% versus February, despite sizable declines in the two prior months.
The Chinese economy grew at an 11.9% rate in the first quarter from a year ago, confirming Beijing's rapid recovery from the global economic crisis but raising new concerns about the risks of overheating.
The economy grew at its fastest rate in nearly 3 years and more quickly than economists had expected. The pace of growth puts new pressure on Beijing to consider tougher tightening measures, including appreciation in the exchange rate and increasing interest rates.
In spite of rising fears of overheating, consumer price inflation dipped to 2.4% last month, from 2.7% in February. However, at the producer level, inflation continued to accelerate, increasing from 5.4% to 5.9% in March.
The government has already taken some steps to reduce the stimulus it is injecting into the economy, including much tighter control over bank lending. However, concerns about potential inflation come at a time of growing international pressure to abandon China’s currency peg against the U.S. Dollar. Federal Reserve Chairman Ben Bernanke has called for a more flexible Renminbi, saying it would help keep China's inflation from accelerating further.
Asian tiger Singapore reset the band in which its currency trades and said it would allow gradual appreciation. This was designed to calm its booming economy, which grew at an annualized rate of 13.1% in the first quarter.
Political consideration continue to be the wild card. Currency markets have been volatile as recent pressure from the U.S. over the Renminbi peg have been met with resistance since the Chinese do not want to be seen as caving to pressure.
Complicating the situation further is the growing worldwide desire for sanctions on Iran. China is seen as critical for a successful diplomatic effort and the United States must tread lightly in order to secure Beijing's
support.
Marko's Take
Please visit our new YouTube video on the Legality Of The Personal Income Tax. The video can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
Friday, April 9, 2010
Showdown With China Over Renminbi
While the Euro-Zone fire spreads, the situation regarding the exchange rate between the Remnimbi and the U.S. Dollar is now escalating.
Yesterday, U.S. Treasury Secretary Timothy F. Geithner flew to China for a previously unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing. This meeting triggered speculation that the Renminbi's 21-month-old peg to the dollar may be abandoned. Geithner last week postponed an April 15 deadline for a U.S. review of currency policies amid pressure from Congress to brand China a "currency manipulator".
At center stage is the issue of fair trade. China’s trade surplus with the U.S. last year rose to $226.8 billion, more than the combined deficit the U.S. had with its next nine biggest trading partners, according to Commerce Department data.
Senators, including New York Democrat Charles Schumer and South Carolina Republican Lindsey Graham, blame the currency peg for much of the imbalance. The peg keeps the currency undervalued, aiding Chinese exporters and discriminating against foreign competitors, according to economists.
China introduced rules last year that restrict government purchases to technology products developed in China, the leading complaint of companies such as Microsoft Corp. and Intel Corp.
Fortunately, there are signs that China has become receptive. Beijing has begun to prepare publicly for a shift in its exchange rate policy.
Tim Geithner told India’s NTV in New Delhi on Tuseday that it was “China’s choice” whether to revalue the renminbi and he was confident Beijing would see a more flexible currency was in its own interest.
The Chinese foreign ministry said China would adhere to three principles on currency policy: any change must be controlled, it must be Beijing’s own initiative and any shift must be gradual.
A senior government economist told reporters in Beijing on Tuesday that China could widen the daily trading band for the renminbi and allow it to resume the gradual appreciation it halted in July 2008 in response to the global credit crisis,
Reports suggest that Treasury officials are optimistic that the Chinese will relax their position, even though yesterday's meeting did not result in any official announcement about the renminbi.
In the delicate negotiations, nothing is certain even if all signs point to a positive policy change in the very near future. The alternative to a relaxation in the pegged status of the Renminbi, would be a variety of economic reprisals possibly leading to a trade war. Trade restrictions didn't work during the Great Depression and they would be equally disastrous now.
Marko's Take
Please visit our YouTube channel at http://youtube.com/markostaketv. Our new episode on the legality on the Personal Income Tax is expected to be posted within the next 48 hrs.
Yesterday, U.S. Treasury Secretary Timothy F. Geithner flew to China for a previously unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing. This meeting triggered speculation that the Renminbi's 21-month-old peg to the dollar may be abandoned. Geithner last week postponed an April 15 deadline for a U.S. review of currency policies amid pressure from Congress to brand China a "currency manipulator".
At center stage is the issue of fair trade. China’s trade surplus with the U.S. last year rose to $226.8 billion, more than the combined deficit the U.S. had with its next nine biggest trading partners, according to Commerce Department data.
Senators, including New York Democrat Charles Schumer and South Carolina Republican Lindsey Graham, blame the currency peg for much of the imbalance. The peg keeps the currency undervalued, aiding Chinese exporters and discriminating against foreign competitors, according to economists.
China introduced rules last year that restrict government purchases to technology products developed in China, the leading complaint of companies such as Microsoft Corp. and Intel Corp.
Fortunately, there are signs that China has become receptive. Beijing has begun to prepare publicly for a shift in its exchange rate policy.
Tim Geithner told India’s NTV in New Delhi on Tuseday that it was “China’s choice” whether to revalue the renminbi and he was confident Beijing would see a more flexible currency was in its own interest.
The Chinese foreign ministry said China would adhere to three principles on currency policy: any change must be controlled, it must be Beijing’s own initiative and any shift must be gradual.
A senior government economist told reporters in Beijing on Tuesday that China could widen the daily trading band for the renminbi and allow it to resume the gradual appreciation it halted in July 2008 in response to the global credit crisis,
Reports suggest that Treasury officials are optimistic that the Chinese will relax their position, even though yesterday's meeting did not result in any official announcement about the renminbi.
In the delicate negotiations, nothing is certain even if all signs point to a positive policy change in the very near future. The alternative to a relaxation in the pegged status of the Renminbi, would be a variety of economic reprisals possibly leading to a trade war. Trade restrictions didn't work during the Great Depression and they would be equally disastrous now.
Marko's Take
Please visit our YouTube channel at http://youtube.com/markostaketv. Our new episode on the legality on the Personal Income Tax is expected to be posted within the next 48 hrs.
Wednesday, February 17, 2010
Is The China Miracle In Trouble?
Conventional wisdom has it that China is the "upcoming" superpower that will challenge the U.S. and ultimately take a position of world supremacy. Long time readers of Marko's Take know why this cannot possibly be true (http://markostake.blogspot.com/2009/12/baby-boomer-bust.html).
China's demographic structure is not conducive to longer-term growth, as the result of their population control measures. In general, demographic structures need to be pyramidally shaped. If the lower end of the structure is curtailed through drastic measures, such as infanticide and limiting children, the pyramid shape gets warped and growth will ultimately cease.
In addition to the inevitable longer-term problems, a spate of shorter-term stresses are becoming known. Most private analysts who study China think its economic recovery lost some momentum in the fourth quarter of 2009, a new poll by The Wall Street Journal shows. The finding runs counter to official statistics that indicate a recent acceleration in growth and highlights the conflicting signals China’s economy is sending at a time when the leadership is trying to contain potential bubbles without derailing the expansion (http://blogs.wsj.com/chinarealtime/2010/02/17/wsj-poll-shows-chinas-growth-slowed-ahead-of-government-tightening/?mod=djemChinaRTR_h).
The median estimate in the Journal’s poll put growth in China’s Gross Domestic Product (GDP) in the fourth quarter at 10.1% over the previous quarter on an annualized, seasonally-adjusted basis — the way that most major economies measure growth. That’s down from the median estimate of 10.7% growth for the third-quarter.
China’s statistics bureau reports GDP growth in year-over-year terms and the difference can be significant. It said last month that the nation’s GDP grew 10.7% in the fourth quarter from a year earlier, a growth rate that accelerated from the third quarter’s 9.1%. Even before those strong numbers were released, China’s central bank had already signaled a new and tougher stage in policy by starting a series of increases in banks’ reserve requirements, measures that reduce funds available for lending.
Complicating the picture further are newly-revised quarter-over-quarter growth estimates from the People’s Bank of China. These show a remarkably smooth trajectory. After bottoming at 4.3% in the fourth quarter of 2008, annualized growth had recovered to 11.4% by the second quarter of 2009, eased to 11.0% and then picked up again to 11.3% in the fourth quarter.
That’s quite different from what most economists in the WSJ poll think happened: a growth surge in the second quarter last year as the stimulus hit, and then a gradual slowdown as its impact waned. While the central bank’s previous estimates had been within the range of figures that other economists had come up with, several private economists told us they did not understand how the central bank had arrived at its revised figures.
The problems don't stop there. As the result of tremendous stimilus programs, China faces massive inflation pressure, which is affecting its currency, the Yuan. With China’s economy surging and flirting with a property bubble, most analysts are prescribing the same remedy: a stronger Chinese currency that would help contain inflation (http://blogs.wsj.com/chinarealtime/2010/02/16/an-alternative-route-to-appreciation-for-chinas-yuan/?mod=djemChinaRTR_h).
A few economists are now turning that argument on its head and proposing that China allow inflation to do the work of currency appreciation. Rather than adjusting the currency upward to make Chinese goods more expensive abroad, authorities should just allow rising wages and other costs to make Chinese goods more expensive, they say. To put it in the language of economists, they think China can get the needed adjustment in the real exchange rate without actually moving the nominal exchange rate.
China is under tremendous pressure from the U.S., Europe and other nations to shrink its huge trade surplus, which some blame for contributing to the financial crisis. A stronger currency could do that by making Chinese goods less competitive. But, Premier Wen Jiabao and other government officials have pushed back against outside pressure on the currency. They have kept the Yuan, or Renminbi, fixed against the dollar since mid-2008, and a big, rapid move is widely seen as unlikely.
Higher inflation could have the same effect — albeit indirectly — and be less contentious politically within China. If average prices in China rise 5% more than in the U.S. and the currency doesn’t move against the U.S. dollar at all, the result is effectively the same as if China revalued the Yuan by 5% and the two countries had the same inflation rate. In both cases, Chinese goods have gotten 5% more expensive in U.S. dollar terms, or to put it another way, the real exchange rate has increased 5%.
All of this suggests that China will need to undergo, at the minimum, a very painful transition process. It also underscores the truly GLOBAL nature of the "Double Dip Hyperinflationary Depression".
Comments? Disagree? TAKE ME ON!
Marko's Take
We are now LIVE on You Tube. A series of prior and future pieces will be accessible at http://www.youtube.com/markostaketv
China's demographic structure is not conducive to longer-term growth, as the result of their population control measures. In general, demographic structures need to be pyramidally shaped. If the lower end of the structure is curtailed through drastic measures, such as infanticide and limiting children, the pyramid shape gets warped and growth will ultimately cease.
In addition to the inevitable longer-term problems, a spate of shorter-term stresses are becoming known. Most private analysts who study China think its economic recovery lost some momentum in the fourth quarter of 2009, a new poll by The Wall Street Journal shows. The finding runs counter to official statistics that indicate a recent acceleration in growth and highlights the conflicting signals China’s economy is sending at a time when the leadership is trying to contain potential bubbles without derailing the expansion (http://blogs.wsj.com/chinarealtime/2010/02/17/wsj-poll-shows-chinas-growth-slowed-ahead-of-government-tightening/?mod=djemChinaRTR_h).
The median estimate in the Journal’s poll put growth in China’s Gross Domestic Product (GDP) in the fourth quarter at 10.1% over the previous quarter on an annualized, seasonally-adjusted basis — the way that most major economies measure growth. That’s down from the median estimate of 10.7% growth for the third-quarter.
China’s statistics bureau reports GDP growth in year-over-year terms and the difference can be significant. It said last month that the nation’s GDP grew 10.7% in the fourth quarter from a year earlier, a growth rate that accelerated from the third quarter’s 9.1%. Even before those strong numbers were released, China’s central bank had already signaled a new and tougher stage in policy by starting a series of increases in banks’ reserve requirements, measures that reduce funds available for lending.
Complicating the picture further are newly-revised quarter-over-quarter growth estimates from the People’s Bank of China. These show a remarkably smooth trajectory. After bottoming at 4.3% in the fourth quarter of 2008, annualized growth had recovered to 11.4% by the second quarter of 2009, eased to 11.0% and then picked up again to 11.3% in the fourth quarter.
That’s quite different from what most economists in the WSJ poll think happened: a growth surge in the second quarter last year as the stimulus hit, and then a gradual slowdown as its impact waned. While the central bank’s previous estimates had been within the range of figures that other economists had come up with, several private economists told us they did not understand how the central bank had arrived at its revised figures.
The problems don't stop there. As the result of tremendous stimilus programs, China faces massive inflation pressure, which is affecting its currency, the Yuan. With China’s economy surging and flirting with a property bubble, most analysts are prescribing the same remedy: a stronger Chinese currency that would help contain inflation (http://blogs.wsj.com/chinarealtime/2010/02/16/an-alternative-route-to-appreciation-for-chinas-yuan/?mod=djemChinaRTR_h).
A few economists are now turning that argument on its head and proposing that China allow inflation to do the work of currency appreciation. Rather than adjusting the currency upward to make Chinese goods more expensive abroad, authorities should just allow rising wages and other costs to make Chinese goods more expensive, they say. To put it in the language of economists, they think China can get the needed adjustment in the real exchange rate without actually moving the nominal exchange rate.
China is under tremendous pressure from the U.S., Europe and other nations to shrink its huge trade surplus, which some blame for contributing to the financial crisis. A stronger currency could do that by making Chinese goods less competitive. But, Premier Wen Jiabao and other government officials have pushed back against outside pressure on the currency. They have kept the Yuan, or Renminbi, fixed against the dollar since mid-2008, and a big, rapid move is widely seen as unlikely.
Higher inflation could have the same effect — albeit indirectly — and be less contentious politically within China. If average prices in China rise 5% more than in the U.S. and the currency doesn’t move against the U.S. dollar at all, the result is effectively the same as if China revalued the Yuan by 5% and the two countries had the same inflation rate. In both cases, Chinese goods have gotten 5% more expensive in U.S. dollar terms, or to put it another way, the real exchange rate has increased 5%.
All of this suggests that China will need to undergo, at the minimum, a very painful transition process. It also underscores the truly GLOBAL nature of the "Double Dip Hyperinflationary Depression".
Comments? Disagree? TAKE ME ON!
Marko's Take
We are now LIVE on You Tube. A series of prior and future pieces will be accessible at http://www.youtube.com/markostaketv
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