Chinese currency won’t be hit by Turkey crisis as much as Indian rupee: analysts

By Li Xuanmin Source:Global Times Published: 2018/8/15 22:33:41

Capital controls, forex reserves offer security

File photo: VCG


The weakening Turkish lira will not drag on China’s currency as much as on those of other emerging economies like India and South Africa, as China maintains strict controls over capital outflows and also has abundant foreign exchange reserves, industry observers said on Wednesday.

Turkey’s economic woes worsened after US President Donald Trump announced on Friday that tariffs on Turkish steel and aluminum would be doubled. The Turkish lira slumped by about 20 percent the same day and the effects rippled through global stock markets and emerging markets’ currencies.

On Tuesday, the Indian rupee sunk to a new low of 70.08 rupees against the US dollar. It weakened further on Wednesday, although the Reserve Bank of India reportedly spent $23 billion to help stabilize the foreign exchange market.

The Argentine peso also hit an all-time low, trading at 30.36 per dollar as of press time on Wednesday. The country’s central bank on Monday also hiked its key interest rate from 40 percent to 45 percent.

China’s yuan traded lower on Wednesday, and its onshore price reached 6.9118 against the US dollar on Wednesday evening, the weakest level since May 2017.

The drastic currency fluctuations have fueled market concerns about whether there could be a domino effect from the Turkey crisis that might hit currencies in emerging markets, including China.

But Tu Yonghong, a professor at the International Monetary Institute at Renmin University of China in Beijing, said that investors are panicking too much about Turkey’s situation.

“The market at first tends to over-react. In recent days, investors and portfolio managers, in a herding move, sold the currencies of emerging economies like India and Argentina to steer away from potential losses,” Tu told the Global Times on Wednesday.

However, “Turkey is not a global economic center. It is not even a member of the EU. The country’s financial market also has minimal links with other nations, so the panic sentiment will calm down sooner or later,” Tu added.

China is different

Despite the tremors in emerging markets, experts said that the yuan is better placed than other currencies to withstand the effects of the Turkey crisis.

“A common issue for emerging economies has been a currency mismatch – when the dollar strengthens, assets in those nations are sold to pocket short-term gains, ramping up devaluation pressure on local currencies. But China does not have this concern because of its strict controls over capital flows and its robust real economy,” Cao Yuanzheng, chairman of BOCI Research, told the Global Times on Wednesday.

Besides, China’s supply of foreign exchange is also abundant and diversified, supported by China’s long-standing trade surplus and its ongoing opening of free trade zones, in addition to about $3 trillion of foreign currency reserves, Tu noted.

The situation is less sound for India, which has long suffered trade deficits and has had to attract foreign capital in the form of foreign debts, Cao noted. “This has made India more vulnerable to fluctuations in the external market,” Cao said.

In response to concerns about recent weakening of the yuan, Liu Aihua, spokesperson for the National Bureau of Statistics, attributed such fears to psychological factors.

“In the mid- to long-term, the economic fundamentals will prevail and the yuan exchange rate will remain stable at a reasonable and balanced level,” Liu said at a press briefing on Tuesday.

The People’s Bank of China, the central bank, also vowed in a report released in early August that it will apply a range of policy tools to “maintain the basic stability of the yuan’s exchange rate at a rationally balanced level.”

China grows stronger amid difficulties: NDRC

Source:Global Times Published: 2018/8/15 19:33:40

Nation will still meet 6.5% GDP growth target despite trade war

China’s economy cannot be struck down by external factors, as already demonstrated in recent decades, said a spokesperson for the National Development and Reform Commission (NDRC), the country’s top economic planner.

Back in 1997, China’s economic output was only about $1 trillion, but now, the figure has climbed to around $12 trillion, with that advancement welcoming the upgrading of many industries, Cong Liang, the NDRC’s spokesperson, told a press conference on Wednesday.

Despite external barriers, confidence in China’s development has become more and more enhanced, said Cong, referring to the difficulties that China has overcome over the past decades, including the Asian financial crisis of 1997 and the global financial crisis of 2008.

“China was not only undefeated, but it grew stronger amid difficulties,” Cong noted.

Cong also reiterated that China will still meet this year’s GDP growth target of around 6.5 percent, despite the ongoing trade war with the US. “According to figures, between January and July, the impact of China-US trade frictions on our economic growth was limited. The overall economy is performing steadily and with good momentum.”

China is on track for an annual economic growth rate of around 6.5 percent this year. In the first six months, China’s GDP rose 6.8 percent year-on-year, latest official data shows.

The country’s economy expanded 6.9 percent in 2017, picking up pace for the first time in seven years.

“We still have sufficient capacity to cope with the impact of escalating trade frictions and ensure the successful completion of the economic and social development goals set at the beginning of the year,” Cong said.

New spending on roads, railways, elderly care and education will not be as heavy as in the past and will aim to meet real market demand, reducing the risk of overcapacity.

Authorities are also hoping to attract private investment in such projects to reduce the government’s debt burden, he said, noting that regulators are relaxing restrictions on local governments’ abilities to sell special bonds to fund projects.

However, policymakers face risks in stimulating the slowing economy without fueling asset bubbles.

Despite some progress in financial risks crackdown in the last few years, China is still among the economies most at risk of a banking crisis, the Bank for International Settlements said earlier this year.

In the second half of 2018 China will continue to push forward reform in key areas, strengthen intellectual property protection, improve the business environment and continue opening-up, said Cong.