Weakening Renminbi and Chinese Manufacturing
By: Amit Bhushan Date: 13th Aug. 2015
The Chinese currency is weakening. This is apparently being done to halt the manufacturing slowdown without realizing the overall impact. This is happening when there is weakness in demand in China's major market viz. Europe, Japan and to some extent the USA.
The idea is to compete vigorously with competing nations to fend off industrial de-growth, besides getting better traction for wares in developing nations. In such a scenario, the customers of Chinese produce will be encouraged to renegotiate pricing down, even while the nations continue to push for policy reforms to develop their own capabilities which is crux of the industrial shift taking place.
The loans in Chinese currency will become attractive while keeping deposits in Yuan, a practice rising in some of the Asian countries will become weaker.It would perhaps mean lower wage growth in other competing nations but chances of China being able to halt the shift is almost impossible. This is partly because borrowing in currencies is still cheaper with ability to throw money at the problem to solve it remaining a higher probability. It can perhaps reduce a bit of pain in Europe due to lowering of prices for consumers in a weak economy and increasing some pain for developing countries due to lower wage growth even on the back of increased industrial activity. This is likely to result in further pressure on commodity prices.
The pressure is likely to sustain for time till there is greater realization about it being unproductive as it retards consumption in developing countries including their ability to finance much needed infra projects. The nations are also vary about teaming up with China which disturbs the current equilibrium as it is envisaged that it has little respect for 'outside' sentiments than compared to democratic powers, which need to take into account a host of views and considerations and can be influenced.
Given the current global situation, much depends upon how the global 'foreign exchange surplus nations' (generally energy exporters) behave in the current market, rather than either China or the USA which off late has been throwing data indicating a strengthening economy. What can perhaps do the trick is rise of infra financing in developing countries in a big way to shore up consumption of commodities while a planned disengagement of surplus capital from stagnating Europe.
This would however require cleaning up rule book and administration in the developing world so that such investors have a clearer understanding about the security of their funds/assets and returns. Such investors may also need crucial guarantees from suppliers and often operating countries governments to not disturb the settings in which such project can generate suitable returns.
Currently such funds found route via the developed nations who brought in expertise for development and management of such projects including laying out rules, though much of these funds remained confined within the national boundaries of developed world, a section was used by Large banks as debts to crucial projects in developing world, still lesser flowed via foreign investments by MNCs and a miniscule amount as minority capital or debt to corporations in developing world.
Now the challenges are about which countries and currencies have the greatest chance to rise and reasoning and basis of such predictions. Besides one also need to have a clearer understanding about what in the current portfolio isn't going to work and why?
By: Amit Bhushan Date: 13th Aug. 2015
The Chinese currency is weakening. This is apparently being done to halt the manufacturing slowdown without realizing the overall impact. This is happening when there is weakness in demand in China's major market viz. Europe, Japan and to some extent the USA.
The idea is to compete vigorously with competing nations to fend off industrial de-growth, besides getting better traction for wares in developing nations. In such a scenario, the customers of Chinese produce will be encouraged to renegotiate pricing down, even while the nations continue to push for policy reforms to develop their own capabilities which is crux of the industrial shift taking place.
The loans in Chinese currency will become attractive while keeping deposits in Yuan, a practice rising in some of the Asian countries will become weaker.It would perhaps mean lower wage growth in other competing nations but chances of China being able to halt the shift is almost impossible. This is partly because borrowing in currencies is still cheaper with ability to throw money at the problem to solve it remaining a higher probability. It can perhaps reduce a bit of pain in Europe due to lowering of prices for consumers in a weak economy and increasing some pain for developing countries due to lower wage growth even on the back of increased industrial activity. This is likely to result in further pressure on commodity prices.
The pressure is likely to sustain for time till there is greater realization about it being unproductive as it retards consumption in developing countries including their ability to finance much needed infra projects. The nations are also vary about teaming up with China which disturbs the current equilibrium as it is envisaged that it has little respect for 'outside' sentiments than compared to democratic powers, which need to take into account a host of views and considerations and can be influenced.
Given the current global situation, much depends upon how the global 'foreign exchange surplus nations' (generally energy exporters) behave in the current market, rather than either China or the USA which off late has been throwing data indicating a strengthening economy. What can perhaps do the trick is rise of infra financing in developing countries in a big way to shore up consumption of commodities while a planned disengagement of surplus capital from stagnating Europe.
This would however require cleaning up rule book and administration in the developing world so that such investors have a clearer understanding about the security of their funds/assets and returns. Such investors may also need crucial guarantees from suppliers and often operating countries governments to not disturb the settings in which such project can generate suitable returns.
Currently such funds found route via the developed nations who brought in expertise for development and management of such projects including laying out rules, though much of these funds remained confined within the national boundaries of developed world, a section was used by Large banks as debts to crucial projects in developing world, still lesser flowed via foreign investments by MNCs and a miniscule amount as minority capital or debt to corporations in developing world.
Now the challenges are about which countries and currencies have the greatest chance to rise and reasoning and basis of such predictions. Besides one also need to have a clearer understanding about what in the current portfolio isn't going to work and why?