China’s currency manipulation to soften the slowdown

Perhaps fearful of a steep slowdown in exports to a weakening global economy, the Chinese monetary authorities appear to be engaging in another bout of active manipulation of the Yuan in the foreign exchanges.

Using the pretext of a rise in the cash-to-deposits ratio required by their domestic banks, the Telegraph reports that “banks in China have been required over the last year to hold extra reserves in dollars rather than yuan.”

The result is another sizeable increase in China’s foreign exchange reserves now estimated to be worth £970 billion. China abandoned the fixed exchange rate between the US dollar and the Yuan in July 2005 but progress towards allowing their currency to float freely on world currency exchanges has been very slow indeed.  According to Ambrose Evans-Pritchard:

“Beijing’s Politburo is clearly disturbed by the sudden downward turn in the economy as export markets freeze, and surging wage inflation in the country’s manufacturing hubs eats away at profit margins.”

The rest of his article is here

Deliberately keeping the external value of a currency weaker than it might otherwise be if left to market forces is a way of maintaining the competitiveness of exports. Effectively this is a subsidy on exports and domestic import-competing products. And it might encourage other emerging market countries in Asia to do the same. China’s huge trade surplus with the United States ought to bring about a more rapid appreciation of the Yuan against the US dollar.

But currency markets rarely move purely because of imbalances in trade between nations. The Chinese monetary authorities look to be between a rock and a hard place. On the one hand they need to control excessive monetary growth and inflationary risks. On the other they fear a loss of competitiveness caused by a rising currency and the emergence of other centres of low-cost manufacturing in countries such as Vietnam and Bangladesh. Growth could well slow down to below 9% in 2009 which may come as something of a shock for a nation that has become accustomed to expanding at double-digit annual rates for several years.

Games no help to Chinese shares (BBC news, August 2008)

Unit 2 Macro: China’s Trade Engine is Spluttering [10 Feb 2012]
Competitiveness [8 Feb 2012]
Unit 2 Macro: Growth and Development - Some Indicators [30 Jan 2012]
Unit 4 Macro: Focus on India - Comparative Advantage [27 Jan 2012]
Unit 2 Macro: Focus on China - Trade and Growth [27 Jan 2012]
Unit 2 Macro: Focus on China - Inflation [26 Jan 2012]
Unit 2 Macro: Focus on China - Carbon Emissions and Growth [26 Jan 2012]
Unit 2 Macro: Focus on China - Per Capita Incomes [26 Jan 2012]
Unit 2 Macro: Focus on China - Changing Economic Structure [26 Jan 2012]
Unit 2 Macro: Can China Stay Competitive [25 Jan 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Unit 4 Macro: Focus on India - Economic Growth [24 Jan 2012]
Unit 2 Macro: Population Shift in China [23 Jan 2012]
Unit 2 Macro: Exporting to the Booming Chinese Economy [23 Jan 2012]
Unit 4 Macro: Money, Debt and the New World Order [22 Jan 2012]
Unit 4 Macro: Russia Joins the WTO [22 Jan 2012]
Unit 3 Micro: The Economics of Solar Subsidies [18 Jan 2012]
Unit 2 Macro: Videos on Productivity [17 Jan 2012]
Unit 2 Macro: Look Upwards to Find the next Downturn [15 Jan 2012]
Unit 4 Macro: Time to Re-Boot the British Economy [14 Jan 2012]
China’s newest 5 year plan - and how it could change the world! [12 Jan 2012]
Unit 4 Macro: Competitive Advantage in Trade (Some Videos) [12 Jan 2012]
Unit 4 Macro: UK Trade Patterns [11 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
Unit 4 Macro: Exchange Rate Economics - Where next for the US Dollar? [31 Dec 2011]
2011 in Review - The US Economy [27 Dec 2011]
Unit 2 Macro: Brazil Overtakes UK in Economic Size [26 Dec 2011]
Unit 3 Micro: Hope Bikes - A Commitment to Excellence [30 Nov 2011]
Unit 4 Macro: Does UK Manufacturing have a Future? [30 Nov 2011]
Keeping it local [24 Nov 2011]
Jim O’Neill - The Growth Map: Economic Opportunity in the BRICs and Beyond [22 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Latest world trade data [6 Nov 2011]
Unit 4 Macro: China and India - Notes from Martin Wolf [6 Nov 2011]
Unit 1 Micro: Is the Sun Dipping on Solar Subsidies? [27 Oct 2011]
Unit 2 Macro: Economic Importance of Investment [19 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Unit 2 Macro: Can Exports Drive a Recovery? [13 Oct 2011]
The Return of Protectionism? [12 Oct 2011]
Unit 4 Macro: USA edges closer to naming China as a “Currency Manipulator” [4 Oct 2011]
Unit 4 Macro: When China Met Africa [1 Oct 2011]
Unit 3 Micro: Science Cities and External Economies of Scale [29 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Unit 4 Macro: Bangladesh and Comparative Advantage in Textiles [19 Sep 2011]
Study Note - Introduction to GDP [15 Sep 2011]
Study Note - The Circular Flow of Income [15 Sep 2011]
Unit 2 Macro: Economic Growth and Inequality [14 Sep 2011]
Toilet rolls, soap and climate change [1 Sep 2011]
Unit 4 Macro: GDP per person since the credit crunch [19 Aug 2011]
Guess where China exports its chopsticks from [7 Aug 2011]
Capital labour substitution at FoxConn [2 Aug 2011]
A surprising example of trade between the USA, China, and Korea. [19 Jul 2011]
Unit 1 Micro: Cotton Prices and the Retail Price of Clothing [13 Jul 2011]
Harry Potter shows that China isn’t quite a market economy yet! [13 Jul 2011]
Unit 1 Micro: Economics of Volatile Corn Prices [12 Jul 2011]
Unit 3 Micro: Motorsport Valley and External Economies of Scale [12 Jul 2011]
China: The End of Cheap Labour [28 Jun 2011]
UK firms wake up to Brazilian opportunities [21 Jun 2011]
AQA ECON4 Context [20 Jun 2011]
Do you agree that the government should provide support to the UK car industry? [12 Jun 2011]
Chinese inward investment in the London property market [12 Jun 2011]
Development Econ: Wealth and Inequality in China [10 Jun 2011]
Invisible Exports - Originating Journalist is remembered [27 May 2011]
Do tariffs actually reduce imports? [26 May 2011]
AS Macro Key Term: Supply-Side Policies [25 May 2011]
AS Macro Key Term: Recession [23 May 2011]
A2 Micro: External Economies of Scale [18 May 2011]
AS economics: Using the cost-benefit principle [18 May 2011]
EU Economics: Comparing the UK with Europe [14 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
AS Micro: What´s really behind the oil price rise? [10 May 2011]
Regulation, legislation and competitiveness - The Bribery Act [5 May 2011]
A2 Macro: Chinese investment in the EU [3 May 2011]
Video Clips on the Chinese Economy [1 May 2011]
Consequences of One Child Policy Play Out [30 Apr 2011]
AS and A2 Macro Revision: Keynesian Economics [28 Apr 2011]
AS and A2 Macro Revision: The China Effect [26 Apr 2011]
Rise in investment could kick start recovery [18 Apr 2011]
Key AS Micro Terms: Taxes and Subsidies [18 Apr 2011]
China set to become exporter of inflation [14 Apr 2011]
AS Macro Key Term:  Balance of Payments [6 Apr 2011]
AS Micro Revision: Banana Prices [1 Apr 2011]
OPEC oil revenues set to surge above $1 trillion in 2011 [30 Mar 2011]
Pacific Peso Reaches 29 Year High! [30 Mar 2011]
Progress towards low carbon economic growth [18 Mar 2011]
Timetric: UK Balance of Trade with China [13 Mar 2011]
Focus on Japan - Human Catastrophe, Economic Risks [13 Mar 2011]
Dambisa Moyo - How the West was Lost [11 Mar 2011]
Timetric: UK Balance of Trade in Oil [6 Mar 2011]
Timetric: Trade Balance in Manufactured Goods [4 Mar 2011]
Patent Box or Innovation Box as Innovation Stimulant? [2 Mar 2011]
Chinese and Indian Railways - Importance of Infrastructure [25 Feb 2011]
EU Economics: Germany leads Euro Zone revival [25 Feb 2011]
Protectionism and the demise of the US shipping industry [24 Feb 2011]
Combining monetary and fiscal policy to curb inflation in China [16 Feb 2011]
The US-China Trade Deficit [14 Feb 2011]
China and Africa - Resources on their relationship [14 Feb 2011]
Economics Q&A: Should the CAP be scrapped? [14 Feb 2011]
Economics Q&A: What factors help to explain rising food prices? [14 Feb 2011]
Mo Tanweer on Global Currency Wars [10 Feb 2011]

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