China’s central bank governor said there is no basis for continued depreciation of the yuan, because the balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, according to an interview published on Saturday in Caixin magazine.
People’s Bank of China (PBOC) Governor Zhou Xiaochuan (周小川) dismissed speculation that China plans to tighten capital controls and said there is no need to worry about a short-term decline in foreign exchange reserves, adding that the country has ample holdings for payments and to defend stability.
The comments come as Chinese financial markets prepare to reopen today after the week-long Lunar New Year holiday.
The country’s foreign exchange reserves shrank last month to their lowest level since 2012, signaling that the central bank sold US dollars to prop up the yuan as it fell to a five-year low. The weakening exchange rate and declining share markets in China have fueled global turmoil and helped send world stocks to their lowest level in more than two years.
“Zhou’s remarks are timely, filling a void in the market’s understanding of China’s strategy on the exchange rate at a critical moment,” Bloomberg Intelligence chief Asia economist Tom Orlik said. “Zhou appears to signal that a shift to a more flexible exchange rate may go on hold through the current period of market stress.”
China is committed to making progress with exchange rate reform during its 13th five-year plan, relying more on the market to determine prices, Zhou said in the interview.
The drawdown of China’s reserves has continued since the devaluation of the currency in August last year, with holdings falling US$99.5 billion last month to US$3.23 trillion.
The stockpile slumped by more than a half-trillion dollars last year.
“Zhou has effectively ruled out any devaluation,” Mizuho Securities Asia Ltd chief Asia economist Shen Jianguang (沈建光) said in Hong Kong. “If they do, it’s effectively acceding to speculators who want the yuan to weaken further.”
Shen said Zhou’s reference to the 13th five-year plan, which starts this year and ends in 2020, points to the time horizon for China to move toward exchange rate policy reforms.
China has no incentive to depreciate the currency to boost net exports and there is no direct link between the nation’s GDP and its exchange rate, Zhou said in the interview.
Capital outflows need not be capital flight and tighter controls would be hard to implement because of the size of global trade, the movement of people and the number of Chinese living abroad, Caixin quoted him as saying.
Capital outflows from China are estimated to have hit US$133 billion last month, the 22nd consecutive month of outflows from the world’s second-largest economy, the Institute of International Finance said on Wednesday last week.
Capital outflows increased to US$158.7 billion in December last year and totaled US$1 trillion last year, according to estimates from Bloomberg Intelligence.
That was more than seven times the amount of cash that left the country in 2014.
The central bank, which has stepped up efforts to stem the exodus, will not let “speculative forces dominate market sentiment,” Zhou said in the interview.
The country will not peg the yuan to a basket of currencies, but will seek to rely more on a basket for reference, while managing daily volatility versus the dollar, he said.
The bank is to use a wider range of macroeconomic data to determine the exchange rate, he added.
“The central bank remains unwilling to give up its space for discretion in management of the exchange rate,” Orlik said. “The critical tension is between allowing the market to play a greater role and maintaining basic stability in the exchange rate. As long as it’s unclear which of those the central bank gives priority to, the market may continue to challenge its control.”
The Eurovision Song Contest has seen a surge in punter interest at the bookmakers, becoming a major betting event, experts said ahead of last night’s giant glamfest in Basel. “Eurovision has quietly become one of the biggest betting events of the year,” said Tomi Huttunen, senior manager of the Online Computer Finland (OCS) betting and casino platform. Betting sites have long been used to gauge which way voters might be leaning ahead of the world’s biggest televised live music event. However, bookmakers highlight a huge increase in engagement in recent years — and this year in particular. “We’ve already passed 2023’s total activity and
Nvidia Corp CEO Jensen Huang (黃仁勳) today announced that his company has selected "Beitou Shilin" in Taipei for its new Taiwan office, called Nvidia Constellation, putting an end to months of speculation. Industry sources have said that the tech giant has been eyeing the Beitou Shilin Science Park as the site of its new overseas headquarters, and speculated that the new headquarters would be built on two plots of land designated as "T17" and "T18," which span 3.89 hectares in the park. "I think it's time for us to reveal one of the largest products we've ever built," Huang said near the
China yesterday announced anti-dumping duties as high as 74.9 percent on imports of polyoxymethylene (POM) copolymers, a type of engineering plastic, from Taiwan, the US, the EU and Japan. The Chinese Ministry of Commerce’s findings conclude a probe launched in May last year, shortly after the US sharply increased tariffs on Chinese electric vehicles, computer chips and other imports. POM copolymers can partially replace metals such as copper and zinc, and have various applications, including in auto parts, electronics and medical equipment, the Chinese ministry has said. In January, it said initial investigations had determined that dumping was taking place, and implemented preliminary
Intel Corp yesterday reinforced its determination to strengthen its partnerships with Taiwan’s ecosystem partners including original-electronic-manufacturing (OEM) companies such as Hon Hai Precision Industry Co (鴻海精密) and chipmaker United Microelectronics Corp (UMC, 聯電). “Tonight marks a new beginning. We renew our new partnership with Taiwan ecosystem,” Intel new chief executive officer Tan Lip-bu (陳立武) said at a dinner with representatives from the company’s local partners, celebrating the 40th anniversary of the US chip giant’s presence in Taiwan. Tan took the reins at Intel six weeks ago aiming to reform the chipmaker and revive its past glory. This is the first time Tan
RSS