CNY (RMB) 02 (Feb 16 - Dec 24)

[behappyalways]

Squeezed to life

China’s currency upsets forecasts by beginning the new year stronger

A liquidity squeeze thwarts investors hoping to profit from a falling yuan

THE omens for the Chinese yuan seemed bad heading into 2017. The capital account looked as porous as ever, making a mockery of the government’s attempts to fix the leaks. The new year, when residents received fresh allowances for buying foreign currency, was due to bring even more pressure.

Analysts braced for a stampede for the exits from China. The yuan had fallen sharply at the beginning of 2016, catching them by surprise. This time, they were ready.

Instead, the yuan began the year as one of the world’s star performers. This was particularly so in the offshore market, where foreigners trade it most freely. It gained 2.5% against the dollar over two days in the first week of 2017, its biggest two-day increase since 2010, when trading began in Hong Kong, its main offshore hub. Within China itself, price increases were more subdued, but the yuan still climbed to a one-month high.

Currency markets are notoriously fickle, so it is dangerous to read too much into a few days of price swings. But in China the government has always had a tight grip on the yuan. So the currency’s strength raised the question of whether it was simply being propped up—or whether the yuan’s prospects were in fact improving.

The Hong Kong rally has the Chinese central bank’s fingerprints all over it. The proximate cause was a shortage of yuan in Hong Kong. As its residents have turned away from the Chinese currency, deposits there have fallen to just over 600bn yuan ($86.7bn), their lowest level since early 2013.

That has led to periodic liquidity squeezes, making the cost of borrowing yuan in Hong Kong prohibitive: the overnight rate soared to 61% at the start of 2017.

In normal circumstances, central banks would be expected to inject money to ease such shortages. But the Chinese authorities did little to stem the cash crunch, pleased to see it hurt those betting against the yuan. To make money by “shorting” a currency, investors borrow it, sell it and then hope to buy it back after its value has fallen.

With borrowing rates so high, this becomes all but untenable. As the liquidity squeeze has abated in recent days, the offshore yuan has pared its earlier gains.

China’s success in defending the yuan suggests that, as the government tightens capital controls, they are having more effect. In the past two months it has started reviewing all transfers abroad by companies worth $5m or more.

Transfers by individuals will also soon face more scrutiny. The controls should slow the erosion of China’s foreign-exchange reserves, which are down to $3trn from $4trn in 2014.

Most important, the Chinese economy is sounder than it was two years ago, when the yuan’s gradual descent began. A property boom has breathed life into heavy industry. Producer-price inflation is running at its fastest in more than half a decade.

The central bank is tightening monetary conditions, however gingerly. As China’s economic and policy cycles more closely track those in America, there is less scope for runaway strength in the dollar, which in turn takes pressure off the yuan.

Even so, many of the factors remain that led the yuan to drop by 7% last year, its steepest fall on record. The broad money supply is still growing at a double-digit rate. Chinese companies and households still have a ravenous appetite for foreign assets.

Most analysts expect the yuan soon to start falling again, though that consensus is no longer rock-solid. China’s central bank has long said that it wants to make the yuan more volatile and less predictable. On that score, it has surely succeeded.

Source: The Economist

[winston]

Is China about to drop a bombshell ?

Source: Daily Crux

http://thecrux.com/rickards-is-china-ab ... bombshell/

[winston]

Is China about to drop a bombshell ?

Source: Daily Crux

http://thecrux.com/rickards-is-china-ab ... bombshell/

[behappyalways]

China clamps down on banks moving currency overseas
http://www.cnbc.com/2017/01/23/china-yu ... rseas.html

[behappyalways]

中國外儲跌穿三萬億美元
六年新低　人幣滙率應聲急挫
http://hk.apple.nextmedia.com/financees ... 8/19921222

[behappyalways]

China’s Forex Reserves Fall Below $3 Trillion in January
http://www.caixinglobal.com/2017-02-07/101051021.html


January’s Slower Forex Reserve Decline Reflects Eased Capital Outflows, Beijing Says
http://www.caixinglobal.com/2017-02-08/101053257.html

中國外儲跌穿三萬億美元
六年新低　人幣滙率應聲急挫
http://hk.apple.nextmedia.com/financees ... 8/19921222

[behappyalways]

China's Currency Policy Approaches Breaking Point
https://www.bloomberg.com/view/articles ... king-point

[winston]

Banks raise interest on yuan deposits

by Daisy Wu

The Hongkong and Shanghai Banking Corporation has raised its interest rate on yuan time deposits to as much as 3.8 percent amid fears that China might squeeze yuan supply to defend its currency.

It has lifted its annualized interest rate on six-month yuan time deposits to 3.8 percent and it is also offering 3.5 percent on three-month deposits and 2.7 percent on one-month deposits.

Minimum deposit amount is 20,000 yuan (HK$22,562).

Shanghai Commercial Bank also raised its interest rate on yuan time deposits, but pegged the level at a uniform 4.8 percent on three-month, six- month and 12-month deposits. It set the minimum deposit at 100,000 yuan.

Onshore yuan gained 0.04 percent to 6.8759 per US dollar yesterday, while offshore yuan weakened 0.2 percent to 6.8769 as of 9:52pm in Hong Kong.

Source: The Standard

[winston]

Banks raise interest on yuan deposits

by Daisy Wu

The Hongkong and Shanghai Banking Corporation has raised its interest rate on yuan time deposits to as much as 3.8 percent amid fears that China might squeeze yuan supply to defend its currency.

It has lifted its annualized interest rate on six-month yuan time deposits to 3.8 percent and it is also offering 3.5 percent on three-month deposits and 2.7 percent on one-month deposits.

Minimum deposit amount is 20,000 yuan (HK$22,562).

Shanghai Commercial Bank also raised its interest rate on yuan time deposits, but pegged the level at a uniform 4.8 percent on three-month, six- month and 12-month deposits. It set the minimum deposit at 100,000 yuan.

Onshore yuan gained 0.04 percent to 6.8759 per US dollar yesterday, while offshore yuan weakened 0.2 percent to 6.8769 as of 9:52pm in Hong Kong.

Source: The Standard

[winston]

PBOC’s hands tied because of sustained capital outflows

Central bank has found itself ‘forced into’ some of its monetary tightening measures, as domestic inflation heats up and expectations increase for more Fed rate rises this year

Between August 2016 and January 2017, foreign exchange reserves fell by around US$34 billion per month on average, according to government data.

After including regional and local government bond swaps, China’s total social financing – a measure of broad credit in the financial system – increased 15.5 per cent in 2016, the latest government statistics show.
That number far-outpaced China’s nominal GDP growth of 8 per cent during the same period.

Moody’s expected the Chinese government to run a deficit of around 3.3 to 3.5 per cent of GDP over the next few years, up from 3 per cent in 2016 and 2.4 per cent in 2015.

General government debt could increase to around 39 per cent of GDP by 2018, from 36.7 per cent in 2016, according to their forecast.

Source: SCMP

http://www.scmp.com/business/article/20 ... l-outflows