China's chance on devaluation risks of Yuan is exhausting on the trump

For more than a month, China seemed to profit from the depreciation of the exchange rate without the global backlash and panicked outflows that accompanied the weakening of the yuan in 2015. Donald Trump then contested.

The president's accusations that China "manipulates" a "rock-bottomed" currency came at the end of a six-week decline in the yuan, which brought it down to its lowest level in addition to a year against the dollar. The remarks, in a tweet and an interview with CNBC, suggested to market participants that the US-China trade war is now expanding to include currencies, putting a fresh look at the Chinese management of the yuan.

After overseeing a decline in the yuan Nearly 5% since mid-June, the question for Chinese officials now is to know whether to turn to other policy measures to support growth in the face of headwinds and exports. Analysts at JPMorgan Chase & Co., for their part, consider the dangers of a rehearsal of the 2015 turmoil as too big for China to continue the current approach.

"Until now, China has reacted to the trade war by easing its monetary policy and letting the yuan depreciate," economists JPMorgan Jahangir Aziz and Zhu Haibin wrote in a note published on Friday. Other measures, including fiscal measures, should soon be implemented to ease the burden. "

Trump's criticism aside, Chinese observers have pointed out that the depreciation of the yuan is better perceived by investors as reflecting the economic fundamentals, rather than the style shock of 2015.

"A few years ago, we had no history to justify the weakening of the yuan," said Iris Pang, China economist at ING Bank in Hong Kong. "It's the PBOC that triggered the sudden devaluation of the yuan, without any notice or any clues," she told the People's Bank of China. China in 2015.

While the yuan ae u Market effects on the S & P 500 Index, Asian equities and oil all fell for a while on Friday after China reduced the yuan's daily benchmark in over two years – the impact was limited.

In August, as Chinese equities entered a bear market, with the CSI 300 index falling about 20% from its peak in January, growth slowed down and worries

Market Driven?

While the Chinese authorities determine whether it is appropriate to answer Trump's Yuan manipulation charges, economists argue that there are clear arguments in favor of a cheaper Chinese currency, "The currency should depreciate from a macro-general point of view – you have the Fed up and easing the PBOC, so at some point this will be reflected in the FX market," Frederic Neumann , co-head of Asian economics research at HSBC Holdings Plc in Hong Kong, told Bloomberg Television. "This is still in line with PBOC's broader policy of introducing more volatility and letting the market play itself out."

Bloomberg Economics estimates that the yuan is overvalued by about 6.6%, based on economic fundamentals. Fielding Chen and Tom Orlik wrote Friday in their analysis that "there is a feeling that the decline is in line with Beijing's wishes and – if they want – under their control."

Still, China has reason to avoid sustained declines in the yuan. Earlier this decade, it burned about $ 1 trillion in reserves to stem an exodus of capital. And in June, the cross-border outflows of amounted to $ 10.7 billion, Morgan Stanley estimates.

The Chinese authorities have taken steps to ensure that the slide does not become too heavy. After falling 2% in the space of one week, PBOC Governor Yi Gang and other senior officials said in early July that China favored a stable currency. Once again Friday, after the fall of the yuan, Asian investors began to worry, signs of action to stem the decline.

"The pursuit of the USD / CNY is probably a bad business," Goldman Sachs Group Inc. Strategists, including Zach Pandl in New York, wrote in a note to customers on Friday, referring to the symbol of the dollar-yuan currency. The yuan "will be more stable, because the United States could interpret the depreciation more as a form of retaliation," they said, with only a three-month forecast of 6.7 per dollar. "For the moment." The currency closed Friday at 6.7864 in Shanghai.