Futures market calls a 2.7% appreciation in China’s currency
Who knew?
That there’s a renminbi futures market even though the Chinese government strictly limits such trading in its currency. Hedge funds and other traders use the NDF market—that stands for non-deliverable forwards—to hedge against or to speculate on moves in the renminbi.
Why is this more than a curiosity? Because just as prices on the fed futures market tell you the odds that traders are putting on a move up or down in U.S. interest rates, the renminbi NDF market tells us what the consensus is on how much the Chinese currency will appreciate this year.
And right now traders on the NDF market are betting that China will end its policy of pegging the price of its currency to the U.S. dollar this year and pricing in a 2.7% appreciation in the renminbi against the dollar by the end of 2010, according to Bloomberg.
If not now, Wen? Still no signs that China is planning a quick appreciation of its currency agains the dollar
In trying to read the tea leaves of China’s economic and monetary politics, you have to pay as much attention to the Who as to the What of any official statement.
So while it’s significant that anyone in the Chinese government is making noises about China abandoning the renminbi/U.S. dollar peg that’s been in effect since July 2008, it’s just as important to note that the statement came from the governor of the People’s Bank of China and not from Chinese premier Wen Jiabao.
In a March 6 press conference Zhou, the head of China’s central bank, called the policy of keeping the Chinese currency pegged at 6.83 to the dollar a special policy aimed at helping China weather the global economic crisis. By pegging the renminbi to the dollar Chinese exports gained a price advantage over competitors as the dollar dropped in value during the crisis.
That certainly implies that Beijing will drop the peg once the global crisis is over.
In contrast Wen did not bring up the renminbi/dollar peg in his state of China speech to the National People’s Congress on March 5. The premier’s most recent comments came in December when he said only that “We will not yield to any pressure of any form forcing us to appreciate.”
There’s a brief window after the National People’s Congress ends and before China’s president Hu Jintao visits Washington in April for China to end the peg without seeming to make the move in response to U.S. pressure. The consensus among economists and China watchers, though, is that mid-2010 is more likely.
Global politics aside, China has increasingly good reasons to end the peg.
Is that duck I see being served at China’s National People’s Congress?
What looks like a duck, quacks like a duck, but doesn’t walk like a duck?
A lame duck, of course.
Watch tomorrow’s state of China address and the policies announced by the National People’s Congress to see if Chinese Premier Wen Jiabao fits that description.
My bet is that with Wen and President Hu Jintao both scheduled to step down from their posts atop the Communist Party and to retire from their government positions in 2013 at the end of their ten-year terms, the jockeying over who will replace them has already begun. And that means that Wen doesn’t have the clout he needs to push through the reforms he has repeatedly told the country it needs.
China’s banks need to raise $90 billion in capital through 2011
That’s a bit of a headwind.
This week China’s big state-controlled banks announced plans to raise $11 billion through stock and bond sales to meet new capital requirements set by the country’s bank regulators.
For example, Bank of China (BACHY.PK) has announced plans for a $6 billion convertible bond offering.
China sells short-term Treasuries but buys long-term U.S. bonds
China sold U.S. Treasuries in December.
At a record pace. (Well, records for this do only go back to 2000 but still…)
The country sold a net $34.2 billion in Treasuries in the month. That brought China’s holdings of Treasuries to a mere $755.4 billion. That’s down from a peak of $801.5 billion in May 2009.
The decline removed China from its position as the No. 1 holder of U.S. Treasury debt. Japan resumed that position as an increase of 1.5% in December moved its holdings of Treasuries to $768.8 billion.
The net decline of $34.2 billion in China’s Treasury portfolio didn’t exactly show that China is abandoning the U.S. dollar, however.
