A Foreign Ministry spokesman said on Feb 14th that China hopes that “relevant sides” will look on the RMB rate issue “in a right manner”. Devaluation RMB to boost exports has mostly been a thing of the past, during the early days of WTO membership. In general China’s exports have shown little elasticity to price. I also believe that RMB exchange rate should continue to be managed by the Central Bank and Trump is probably beginning to take a more real politik with China: the less is said, the better.
China’s foreign reserves slipped below the $3 trillion level in January, the lowest level since February 2011. In the background of a lacking economic confidence and rising trade protectionism throughout the world, the implications of the decline of China’s foreign reserves remains to be seen. It is a concern because the world has been used to China accumulating reserves. The main concern is not the level of reserves, but is the trend.
Ministry of Commerce (MOC) said Chinese exporters have suffered a total of 20 trade remedy probes initiated by the United States in 2016, which was an 81.1% increase year on year. 3.7 billion USD was involved in the 11 anti-dumping and nine anti-subsidy investigations, an increase of 131% from 2015. China suffered 140 trade remedy measures from the United States as of the end of 2016, including 102 anti-dumping and 38 anti-subsidy measures.
In Jan, the figure of China’s import and export is far beyond expection. Export increase by 7.9% increase YoY calculated by USD, and 15.2% increase if calculated by RMB. Import also increased dramatically, with 16.7% by USD and 25.2% by RMB. My advice is from now on to look at the combined values of both current account and capital accounts, roughly speaking trade and capital investment balances.
The biggest challenge for China today lies in its capital account. Since the Renminbi began its downward slide in 2015, the incentive to reduce foreign debts and increase overseas assets has intensified.Under the accuse of Trump’s claim that China is an exchange rate manipulation country, China can choose to apply a floating exchange rate policy. However, this policy would cost China large amount to maintain currency stability. Under this circumstance, China should try to increase foreign investment in order to maintain international control.
Morgan Stanley’s research did three scenario analyses, assuming the average tariff to be 15%, 30% and 45%, to see the effect on Chinese export and economy. Under the tariff of 15%, 30%, and 45%, Chinese exports to the US will decrease by 20.7%, 46.2% and 71.7% respectively, resulting in a total decrease of China export of3.7%, 8.2% and 12.8%. China International Capital Corporation claimed that it is relatively impossible for Trump to set 45% as average tariff. The research then predicted what China economy will be like if 30% was the average tariff rate.
Sino-U.S. trade volume grew from 2.5 billion U.S. dollars in 1979 to about 519.6 billion dollars in 2016, surging by 211 times within 38 years, according to MOC statistics. A report from the U.S.-China Business Council (USCBC) showed that bilateral trade and investment in 2015 created about 2.6 million jobs for Americans and contributed to about 1.2 percent of U.S. GDP that year.
Wilbur Ross, American Commerce Secretary on Wednesday stated that China is the most serious trade protectionist country. China is doing well in talking about free trade than actually doing it. When dealing with trade and protectionism issues, a country is always trying to find a balance between protecting the interest of producers’ vs protecting the interest of consumers’. But things get more complicated when policy makers need to find a compromise between making a country better off on average vs making everyone better off.