The RMB crowd may be wrong, again.
2016-01-28 16:46阅读：
In the 1990s, almost the whole world agreed that the Chinese
RMB was about to collapse.
I was a lonely and noisy contrarian in those years. In
December 1998 when, as the head of China research, I was sacked by
my employer, HSBC Securities, for giving an interview to the South
China Morning Post (SCMP) on the basis of my published report which
argued that the renminbi was undervalued rather than overvalued,
and that the currency would strengthen significantly against the US
dollar. I further opined that the Chinese Ministry of Finance's
plan to issue a 2 billion dollar 'Yankee bond' was a 'lose-lose
proposition' because China's foreign reserves were already too high
(merely 130 billion USD at the time).
It was not my radical view that caused my sacking, though my
view did irritate some inside HSBC and among the bank's clients.
No, the real reason for my sacking was that HSBC, together with
Goldman Sachs, was the underwriter of the Yankee
bond.
Out of work for a few months, I was hired in 1999 as the head
of China research by UBS, one of my former employers. I repeated my
contrarian view in reports and newspaper op-eds with even greater
conviction. And I almost lost my job again, though for a different
reason. A powerful player at the investment bank's head office,
during his visit to Hong Kong, came to my office for a chat. I was
out of the office so he left me a handwritten note to say that I
was 'dead wrong' and that I ought to 'heed the house view'. I kept
his note, but ignored his warning.
______________________
Don't write off the yuan,
by Joe Zhang, Nikkei Asia
Review, 28 January 2016,
http://asia.nikkei.com/Viewpoints/Viewpoints/Don-t-write-off-the-yuan
In the late 1990s, the consensus inside and outside China was
that the Chinese yuan would collapse. I do not know of a China
expert who did not write articles to that effect. Economists at
investment banks routinely rolled over their forecasts of a yuan
depreciation on a monthly and quarterly basis.
I was a lonely and noisy contrarian in those years, first as
head of China research at HSBC Securities and then in a comparable
post at UBS, insisting in published articles and interviews that
the currency was more likely to appreciate than to decline. Today,
the world has reached a similar consensus about the likelihood of
yuan depreciation. But I feel that the “China watching” industry
may be making the same mistake.
The argument for a yuan depreciation is widely aired, so I
will not repeat it. But there are several key factors that I think
observers have chosen to neglect. First, fair exchange rates are
not defined as a magic number; they make up a wide range. In
my view, today's yuan is still within that fair range, whichever
metric you look at -- for example, its purchasing power relative to
other currencies.
Second, whatever the calculation, the ultimate proof of the
fairness of an exchange rate is the country's external trade
balance. On that score, the yuan is doing very well. China's trade
surpluses in recent months have been near record highs. The truth
is that China remains an impressive export machine despite some
obvious erosion of its competitiveness, and despite the
protectionism of its trading partners. Due to the collapse of
commodity prices in recent years, China's import bills will
continue to shrink much faster than the decline of its exports,
yielding growing trade surpluses.
Indeed, China's trade surplus will likely grow in the next
few years in either scenario; if the global economy turns around,
which means higher commodity prices, China's exports will grow on
the back of higher demand from the West for its products. If the
global economy stays weak, China's import bills will stay low
thanks to low commodity prices.
Third, despite increased anxiety in recent years among
Chinese citizens as well as businessmen, China still boasts
remarkable political stability, and the government still commands
popular support. Importantly, economic freedom is now growing
rather than declining. That means that capital flight will be
limited. It may even have run its full course. However, note that
the state sector is still in control of at least two-thirds of the
economy.
Finally, throughout the late 1980s and the 1990s, there was
an active black market for foreign currency exchange in China, and
the dollar traded between 10-15
yuan on the black market, compared with 5-8 in the
official market. Even when I was a manager at the central bank in
1989 I had to buy dollars from the black market to help finance my
overseas education. That illustrates how tight the market was at
the time.
In those years, and even much earlier, the People's Bank of
China had to ration foreign exchange through quotas and foreign
exchange certificates. Many draconian rules were enforced to
maintain exchange rates. Not surprisingly, there was rampant
corruption in the process, and large numbers of officials and
businessmen were jailed for violations.
No real pressure
By comparison, today's situation is vastly different. The
rationing system is long gone, as is the foreign exchange
certificate. Each year, millions of Chinese citizens readily obtain
foreign exchange from official channels to finance overseas travel,
education, purchases, and even investments. Therefore, there is no
black market for foreign exchange trading. I have to conclude that
there is no real pressure on the yuan. China's foreign reserves of
more than $3 trillion are in any case too high for any pressure to
succeed.
China's share of global gross domestic product has grown from
3.5% in 1997 to more than 13.5%. The yuan is slowly but surely
being accepted by China's trading partners as a medium of exchange.
Even the International Monetary Fund is accepting it as a reserve
currency. In the past decade, the yuan has appreciated
significantly against almost every major currency in the world.
Given the weakness of China's economy today, Beijing has incentives
to unwind some of that.
Beijing's clumsy maneuver last August, when it depreciated
the currency without warning and then reversed course, gave the
game away. But the panic in the global market has caught Chinese
officials by surprise. They now realized that China is not just
another emerging market. It is an anchor of the global economy.
That was the message from the global market. Even the devaluation
of the Japanese yen by as much as a third in recent years did not
cause the global market to react as violently as China's 2% to 3%
depreciation.
Precisely because of that drama, Beijing is now working hard
to reverse market expectations. To prevail will not be too hard.
China's performance as a major stabilizing force in the 1998 Asian
financial crisis and the 2008 subprime crisis has earned Beijing a
high degree of credibility, and Beijing will not want to squander
that economic good will.
After all, exchange rates are not crucial to China's export
growth, which is influenced by many other more important factors,
such as “red tape,” and taxes. If Beijing is desperate to stimulate
the economy, it has many other levers to pull. It is not doing this
yet, and does not seem desperate. A slower economic growth rate is
now seen as an acceptable new normal by Beijing. After all, many
academics have shown that a weaker currency does not boost exports
as much as was commonly assumed. On the contrary, it erodes
confidence, creates uncertainty, and causes import bills to
swell.
All these considerations underline Beijing's recent efforts
to stabilize the foreign exchange market. It is succeeding and will
prevail soon. It is dangerous to make predictions, but I am still
tempted. I think the yuan is likely to be stable, and may even
appreciate against the dollar in the next few years.
Joe Zhang is chairman of China Smartpay Group and
author of 'Party Man, Company Man: Is China's State Capitalism
Doomed?'
