George Soros may have broken the BOE and may well have been at least partially to blame for the Asian Financial Crisis, but he will not win an FX battle with the PBoC. At least that’s Beijing’s message to the billionaire, as conveyed via a characteristically hilarious “op-ed” in the People’s Daily entitled “Declaring war on China’s currency? Ha ha”
Yes, “ha, ha.” Although there’s nothing funny about the $1 trillion in capital that fled the country in 2015 on the heels of the PBoC’s bungled effort to “manage” a controlled devaluation of the yuan.
Although Soros didn’t specifically mention either the RMB or the HKD, he did indicate he is betting against Asian currencies in an interview with Bloomberg TV last week and that, apparently, was cause for Beijing to issue a stern warning.
“Soros’s war on the renminbi and the Hong Kong dollar cannot possibly succeed — about this there can be no doubt,” the People’s Daily says, after calling Soros “the financial crocodile,” and blaming the billionaire for “increasing volatility in already unstable financial markets.”
Perhaps Beijing knows something everyone else doesn’t, or perhaps the PBoC simply assumes that when Soros mentions “hard landing” and betting against Asian currencies in the same breath it probably means he’s short the yuan, but whatever the case, Chinese authorities have ramped up the rhetoric in the past several days.
“Reckless speculations and vicious shorting will face higher trading costs and possibly severe legal consequences,” Xinhua wrote over the weekend. “And just as proved in the yuan exchange rate case, the Chinese government has sufficient resources and policy tools to keep the overall economic situation under control and cope with any external challenges.”
The ironic thing about the latter passage there is that Soros actually echoed that sentiment in the interview China appears to be referencing. “China can manage it. It has resources and greater latitude in policies, with $3tn in reserves,” he said.
Of course China won't be able to arrest Soros and beat a confession out of him like Beijing is fond of doing to others suspected of launching "malicious" short attacks, but the brash commentary does indicate that Chinese authorities are becoming increasingly sensitive to suggestions that a steeper RMB devaluation is a foregone conclusion.
As we've noted on a number of occasions, capital flight is as much about perception as it is about reality. If people believe there's a problem, they'll act first and ask questions later and when a voice as influential as Soros says the "hard landing" is upon us, it has the potential to trigger more outflows at a time when more than a hundred billion per month is exiting the country for the safety of foreign assets like high-end real estate.
Also on Tuesday, China said the head of the country's statistics bureau Wang Baoan is now under investigation for "serious violations of discipline." The news comes just hours after Wang criticized Soros' hard landing call.
Hours after dismissing George Soros' bearish views on China, stats bureau chief Wang Baoan arrested for corruption
— gabriel wildau (@gabewildau) January 26, 2016
NBS chief says George Soros's claim of hard landing is only his personal opinion.
China still has great potential. pic.twitter.com/LdhAG8nejQ
— Eddie Du (@Edourdoo) January 26, 2016
We anxiously await the word on what exactly Wang is accused of doing wrong considering the NBS is the body responsible for habitually reporting GDP figures that never deviate materially from the Party's 7% target.
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Full People's Daily piece
Original title: a declaration of war to the Chinese currency? "Ha ha"
Source: People's Daily Overseas Edition
From last year to this year, the "financial predators," said Soros, the man of the hour for two consecutive years as one of the World Economic Forum in Davos the most interesting. Last year, he used the platform to announce the "permanent retirement", no financial investment involved in the political arena and instead focus on its so-called "political charity"; this year, is also on this platform, he was open to China "declaration of war", claiming that We have generous short Asian currencies. Because of his influence, fluctuations in the international financial markets has intensified already existing Asian currencies obviously feel greater pressure speculative attacks.
However, Soros challenge for the renminbi and the Hong Kong dollar is unlikely to succeed - this, no doubt.
Although China's economic growth downward since last year, stock market volatility, the yuan against the dollar, but in this period of global slowdown in economic growth, China's economic fundamentals are relatively good among the great powers: economic growth last year, equivalent to the US growth twice; China in 2015, although exports fell 1.8%, but the global trade decreased by 10% over the same period; China continues to upgrade industrial structure, advanced manufacturing and emerging new services is still growing, and has begun more and more field line leading world ......
These show that China's macro-economic stability is far better than the other BRIC countries and most developed countries, economic shocks can not simply overturn China, China is still able to maintain a global economic power in relatively good condition. Meanwhile, the ethnic composition and cultural tradition unity and other factors also gives a higher high social stability of China.
Specific to the RMB exchange rate is concerned, since the middle of last year the RMB against the US dollar depreciated slightly indeed, but market participants will also be seen that the average annual exchange rate of RMB measure, from $ 1 in 1994 against 8.6187 yuan to one US dollar in 2014 against 6.1428 yuan, the appreciation of the RMB against the US dollar has been for nearly 20 years, only a slight repeated in 2000. The continued appreciation of one currency against the US dollar so long time, amplitude so large is rare, a slight pullback now is normal. Moreover, China has become the world's second largest economy, the yuan pegged to the dollar is not always in fact - in the capital is highly mobile world, in order to achieve the independence of monetary policy, China is willing and able to withstand the temporary exchange rate, slightly volatility, market participants will sooner or later realize that and get used to this, thereby reducing the current over-reaction so.
Background from a larger perspective, the current strength of the dollar against most other emerging market currencies may continue for a long time, but the renminbi is difficult to do this. Because China's trade balance surplus remained sustained, and surplus is still expanding; the US economy is already in deep financial "Dutch disease" (a sector booms caused by the decline of other sectors) and escape.Although the United States want to re-consolidate the economic foundation in fact, the body, the "re-industrialization" momentum almost but difficult to continue, resulting in the goods trade balance continued to deteriorate as the economy recovers. This one US dollar against the yuan temporarily strong, will certainly be the aforementioned "Triffin dilemma" (confidence and liquidity dilemma) interrupted, and it can be expected that this time may not be too long.
From another perspective, Soros to Asian currencies "declaration of war", but also for China to create a deepening of financial cooperation in East Asia as well as "all the way along the" opportunity of financial cooperation. International monetary cooperation from low to high is divided into international financing cooperation, joint intervention in currency markets, macroeconomic policy coordination, joint exchange rate mechanism, the single currency five levels - direct power of its deepening, usually pressure from speculative currency attacks.
The current monetary cooperation in East Asia, is still in currency swaps and repurchase network level marked by cooperation in the area of ??financing. Now, emerging market currencies volatility, Soros started speculative attacks on Asian currencies starting gun for the Chinese and other East Asian economies, to achieve cooperation from international financing to carry out joint intervention in currency markets and even upgrade macroeconomic coordination, is not a Opportunities do?