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Yuan likely to continue appreciating
By Charlie Lay |
March 22, 2012, Thursday
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Print Edition
Print Edition
EDITOR'S Note: China's Premier Wen Jiabao this month cut China's economic growth outlook this year from a long-held 8 percent to 7.5 percent. The announcement has economists buzzing. Here's what some of them had to say.
February's trade deficit was a shocking US$31.5 billion due to a weaker-than-expected rebound in exports (18.4 percent, year-on-year) and strong imports (up 39.6 percent). The negative view is the sluggish export rebound could persist, given the subdued outlook for the eurozone as a whole.
On the positive side, the composition of imports pointed to some re-stocking in anticipation of firmer production and exports ahead. For example, copper imports surged 50 percent year-on-year, and aluminum imports jumped 38 percent in January-February. This is consistent with the better-than-expected PMI readings of late, namely in new orders.
People's Bank of China Governor Zhou Xiaochuan cited the January-February trade deficit of US$4.2 billion turning from a surplus of US$48.1 billion in fourth quarter as evidence that the yuan is closer to a balanced level, that is, equilibrium. He sees greater two-way expectations of the yuan going forward, and the end of yuan appreciation will depend on market forces of demand and supply.
All in all, we don't see this as the start of a trend of deficit readings, but we do expect it to swing back to surplus as imports normalize and exports pick up.
Soft landing
Premier Wen Jiabao has said that the government will aim for 7.5 percent growth this year versus the long-held 8 percent target. The 12th Five-Year Plan (2011-2015) target is at 7 percent. The central government is giving clearer signals that the quality and composition of growth towards domestic consumption are central to efforts to restructure the economy.
February new loans growth was lower-than-expected at 711 billion yuan (US$112 billion) from 738 billion yuan in January. Zhou said, in theory, there is "lots of room" to cut the reserve requirement ratio, but this is dependent on a range of factors, including the balance of payments. We maintain the government is orchestrating a soft landing, with the ability and scope to ease when necessary.
For the US dollar-yuan exchange rate, we are still targeting 6.05 by year-end, implying 4.5 percent appreciation versus the greenback from the spot price of 6.32.
We would keep a close eye on exports in coming months, in particular, exports to the eurozone. A more subdued export performance could see authorities contain excessive appreciation. At the same time, in a US election year, it would also be difficult politically to see a sharp yuan depreciation.
February's trade deficit was a shocking US$31.5 billion due to a weaker-than-expected rebound in exports (18.4 percent, year-on-year) and strong imports (up 39.6 percent). The negative view is the sluggish export rebound could persist, given the subdued outlook for the eurozone as a whole.
On the positive side, the composition of imports pointed to some re-stocking in anticipation of firmer production and exports ahead. For example, copper imports surged 50 percent year-on-year, and aluminum imports jumped 38 percent in January-February. This is consistent with the better-than-expected PMI readings of late, namely in new orders.
People's Bank of China Governor Zhou Xiaochuan cited the January-February trade deficit of US$4.2 billion turning from a surplus of US$48.1 billion in fourth quarter as evidence that the yuan is closer to a balanced level, that is, equilibrium. He sees greater two-way expectations of the yuan going forward, and the end of yuan appreciation will depend on market forces of demand and supply.
All in all, we don't see this as the start of a trend of deficit readings, but we do expect it to swing back to surplus as imports normalize and exports pick up.
Soft landing
Premier Wen Jiabao has said that the government will aim for 7.5 percent growth this year versus the long-held 8 percent target. The 12th Five-Year Plan (2011-2015) target is at 7 percent. The central government is giving clearer signals that the quality and composition of growth towards domestic consumption are central to efforts to restructure the economy.
February new loans growth was lower-than-expected at 711 billion yuan (US$112 billion) from 738 billion yuan in January. Zhou said, in theory, there is "lots of room" to cut the reserve requirement ratio, but this is dependent on a range of factors, including the balance of payments. We maintain the government is orchestrating a soft landing, with the ability and scope to ease when necessary.
For the US dollar-yuan exchange rate, we are still targeting 6.05 by year-end, implying 4.5 percent appreciation versus the greenback from the spot price of 6.32.
We would keep a close eye on exports in coming months, in particular, exports to the eurozone. A more subdued export performance could see authorities contain excessive appreciation. At the same time, in a US election year, it would also be difficult politically to see a sharp yuan depreciation.
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