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IMF says yuan no longer undervalued

Lisa Murray
429 words
28 May 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

China's currency is at a level that is "no longer undervalued", the International Monetary Fund says, an assessment that comes after years of accusations from Washington that Beijing was intervening to keep the yuan low to boost exports.

"While undervaluation of the [yuan] was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued," the organisation said, marking an important shift in its thinking.

An IMF team has just spent two weeks in Beijing, Shanghai and Taiyuan as part of an annual review of the Chinese economy, which included meetings with Vice-Premier Ma Kai and People's Bank of China governor Zhou Xiaochuan.

"We urge the authorities to make rapid progress toward greater exchange rate flexibility, a key requirement for a large economy like China's that strives for market-based pricing and is integrating rapidly in global financial markets," the IMF said, adding China "should aim to achieve an effectively floating exchange rate within two to three years".

The reassessment comes at an important time for China, which has asked the IMF to include the yuan in the Special Drawing Rights currency basket, currently made up of US dollars, yen, pounds and euros. A review will take place later this year and any changes would come into effect in 2016.

The IMF expects China's economy to grow 6.8 per cent this year, lower than its government's official 7 per cent target - as it moves away from "the unsustainable growth pattern of the past decade". It forecasts inflation will end the year at about 1.5 per cent.

"Since the global financial crisis, growth has relied on an unsustainable mix of credit and investment that has resulted in rising vulnerabilities," the IMF said.

"The authorities have moved on several fronts to address these vulnerabilities, as we have seen the decline in total social financing growth, tighter oversight of shadow banking, moderating investment growth, and slowdown in real estate construction. Nevertheless, vulnerabilities in these areas remain large and continued, determined efforts are needed to address them."

The IMF said if growth looked like it would dip below 6.5 per cent this year, the Chinese government should ease fiscal policy using measures that "support rebalancing, and are consistent with the reform agenda".

Progress on the reform of China's state-owned enterprises had been "too slow", it said.


Fairfax Media Management Pty Limited

Document AFNR000020150527eb5s0002f

China economy shows more weakness as imports, exports fall

Beijing (AFP) - Chinese imports fell for a seventh straight month in May while exports also sank, according to official data, as the world's second biggest economy shows protracted weakness despite government easing measures.

The disappointing figures, released on Monday, also come as leaders try to transform the economy to one where growth is driven by consumer spending rather than by government investment and exports.

Imports slumped 17.6 percent year-on-year to $131.26 billion, the General Administration of Customs said in a statement.

The decline was much sharper than the median forecast of a 10 percent fall in a Bloomberg News poll of economists and followed April's 16.2 percent drop.

Read more here..

(The last photo is funny.....one minute to learn.....)

Touts and Tips
http://english.caixin.com/2015-06-09/100817428.html

Rofl, one minute can learn, one minute can understand, buffett analysis system.

The picture of old lady trying to buy stocks definitely shows us the bubble euphoria is there and people have largely forgotten 2008 in their moment of greed.

sent from my Galaxy Tab S

Don't laugh.....

In Singapore there are plenty of people paying for 'tips' from 'Gurus'. At least in China it is free.......

The ongoing bubble is part of the agenda to provide liquidity for this reform process...

It said the government’s ¬reform agenda, intended to permit markets to play a “decisive” role, would naturally involve increasing tolerance for corporate defaults.
Ultimately, it viewed this realisation of corporate failure “as a necessary element of China’s rebalancing process, which will lead to a more efficient allocation of resources and pricing of capital over time”.
And the government would remain in control of this process, it said, having “adequate fiscal and monetary headroom and exerting sufficient control over the economy to support the banking system and avoid widespread corporate failure”, as well as engineering a soft landing for the economy as a whole.


Corporate distress on rise in China: Moody’s
THE AUSTRALIAN JUNE 11, 2015 12:00AM

Rowan Callick

Asia Pacific Editor
Melbourne

China’s corporate revenue and debt Source: TheAustralian
Chinese corporations — especially those in the private sector with limited access to funding — are facing growing financial ­distress as slower growth and the government’s reform agenda ­expose overstretched balance sheets.

Evidence of corporate distress was spilling into public bond markets, with three defaults so far and more likely, Moody’s said in a report published yesterday.

The ratings agency said “high-yield private companies in sectors with excess capacity such as steel, mining, solar, commodities trading and shipbuilding are most likely to exhibit signs of distress because their financial profiles are relatively weak”.

However, it remained optimistic that “ultimately, policy easing and government support will ­prevent an escalation of corp­orate defaults and systemic risk to markets” — both onshore and offshore.

Moody’s pointed out 78 per cent of the companies it rated in China had stable outlooks.

But they were generally market leaders in their respective ­industries, it said, and while it did not expect any kind of collapse, it could not rule out further ­defaults.

The agency continued to expect strong support for rated state-owned enterprises with strategic economic performance, but expected increasing differentiation in the future, with credit quality and government support gradually diverging “based on the companies’ relative importance to the Chinese government and to their parents, if they are subsidiaries of larger SOEs”.

Moody’s attached a heightened value to assessing the government’s own rating of its SOEs.

It listed in order the sectors whose SOEs would attract the strongest government support, including petrochemicals, telecoms, power grids, railways, aerospace and defence, management of grain and cotton reserves, ­financial services, tobacco and airlines.

The agency said in the first quarter of 2015 revenue per share of companies listed on the Shanghai and Shenzhen sharemarkets contracted 4.2 per cent year on year, while corporate leverage had soared.

It forecast Chinese growth would soften to 6.8 per cent this year and 6.5 per cent in 2016.

It said the government’s ­reform agenda, intended to permit markets to play a “decisive” role, would naturally involve increasing tolerance for corporate defaults.

Ultimately, it viewed this realisation of corporate failure “as a necessary element of China’s rebalancing process, which will lead to a more efficient allocation of resources and pricing of capital over time”.

And the government would remain in control of this process, it said, having “adequate fiscal and monetary headroom and exerting sufficient control over the economy to support the banking system and avoid widespread corporate failure”, as well as engineering a soft landing for the economy as a whole.

The article adds nothing new, but I would like to highlight the basic mentality of China retail investors below. It is a real risk, amid the stock market liberalization...

Small investors flying blind in China’s stock market boom
...
“It’s unnecessary to learn too much about stocks,” said Ms Huang.

Why? Ms Huang echoes a common sentiment in a heavily regulated economy in which stock prices are driven more by policy changes than economic fundamentals: “The stock market in China is obviously manipulated by the government, so if you are to make losses, it is fated and has nothing to do with whether you know more or not.”
...
http://www.todayonline.com/chinaindia/ch...arket-boom

China’s industrial output lifts 6.1 per cent
AFP JUNE 11, 2015 3:52PM

China’s industrial production, which measures output at factories, workshops and mines in the world’s second-largest economy, rose 6.1 per cent year-on-year in May, the government said today.

Retail sales, a key indicator of consumer spending, increased 10.1 per cent in the same month, the National Bureau of Statistics said.

And fixed asset investment, a measure of government spending on infrastructure, expanded 11.4 per cent on-year in the January-May period.

The industrial output figure came in at a three-month high and was marginally above the 6 per cent median forecast in a poll by Bloomberg News.

The retail sales result matched the median forecast of 10.1 per cent. The data came as China’s economy has continued to slow in 2015 after growing at its weakest pace — 7.4 per cent — in nearly a quarter century last year. In the first three months of this year gross domestic product (GDP) expanded 7 per cent in January-March, the worst quarterly result in six years.

China’s authorities are trying to engineer a controlled slowdown as they seek to transform the country’s growth model to one whereby consumer spending becomes the key driver as opposed to heavy infrastructure investment.

But they fear too fast a deceleration and have carried out stimulatory measures including interest rate cuts to help ensure the slowdown doesn’t get out of hand.

It was quickly proven correct. Chengdu's vacancy rate for office buildings reached 40.8 percent in the first quarter of this year, up from 35.9 percent at the end of last year, reported Jones Lang LaSalle, a real estate service and investment company based in Chicago. Oversupply also caused monthly rents to fall to 97.1 yuan per square meter, down 3.2 percent from the first quarter of last year.


Chengdu's Commercial Property Market Falls on Hard Times
http://english.caixin.com/2015-06-11/100818363.html

Hehe they will have to learn the hard way about property and credit cycle. After a big boom, there will always be a big bust. Once there is massive oversupply and prices drop and credit tighten, there is nothing much gov can do.

I suspect the situation is being repeated all over china, just that they cant let the world know to save face.
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