China’s yuan is now at a level where is is “is no longer undervalued”, the International Monetary Fund has said following a visit to the world’s second biggest economy, but China’s current account surplus and foreign exchange reserves are “still too strong” and highlight “the need for other policy reforms”.
In a statement sent following an IMF mission to China, the fund said:
On the external side, China has made good progress in recent years in reducing the very large current account surplus and accumulation of foreign exchange reserves.
Nevertheless, staff projections for 2015 suggest that China’s external position is still moderately stronger than consistent with medium-term fundamentals and desirable policies.
The IMF is urging the Chinese government to push through further measures to “reduce excess savings and achieve sustained external balance”, while is also pressing for “rapid progress” towards greater exchange rate flexibility. The IMF believes China could achieve an effectively floating exchange rate within 2–3 years.
From the statement: >> Read More
While admitting that reaching agreement between the two countries will be difficult to achieve, George Soros - speaking at The World Bank’s Bretton Woods conference this week - warned that unless the U.S. makes ‘major concessions’ and allows China’s currency to join the IMF’s basket of currencies, “there is a real danger China will align itself with Russia politically and militarily, and then the threat of world war becomes real.”
Much in global geopolitics depends on the health and trajectory of the Chinese economy, was the undertone of George Soros’ comments as he spoke this week, but as MarketWatch reports,
Billionaire investor George Soros said flatly that he’s concerned about the possibility of another world war. …
If China’s efforts to transition to a domestic-demand led economy from an export engine falter, there is a “likelihood” that China’s rulers would foster an external conflict to keep the country together and hold on to power.
To avoid this scenario, Soros called on the U.S. to make a “major concession” and allow China’s currency to join the International Monetary Fund’s basket of currencies. This would make the yuan a potential rival to the dollar as a global reserve currency.
In return, China would have to make similar major concessions to reform its economy, such as accepting the rule of law, Soros said.
Allowing China’s yuan to be a market currency would create “a binding connection” between the two systems.
An agreement along these lines will be difficult to achieve, Soros said, but the alternative is so unpleasant.
“Without it, there is a real danger that China will align itself with Russia politically and militarily, and then the threat of third world war becomes real, so it is worth trying.”
>> Read More
India’s prime minister, Narendra Modi, warned China’s leaders on Friday that it was up to them to rethink policies that he said had impeded cooperation between the two Asian giants.
Mr. Modi made the comments to reporters in Beijing after meeting with Premier Li Keqiang and unveiling 24 agreements that both men said would help improve relations. But Mr. Modi added a proviso: that better ties depended on the Chinese government listening to India’s grievances.
“We covered all issues, including those that trouble smooth development of our relations,” Mr. Modi said of his talks with Mr. Li and, on Thursday, with China’s pre-eminent leader, President Xi Jinping.
The sources of contention between the two countries have included long-running border disputes, a heavy trade imbalance in China’s favor and India’s wariness toward China’s partnership with Pakistan, India’s rival.
“I stressed the need for China to reconsider its approach on some of the issues that hold us back from realizing full potential of our partnership,” Mr. Modi said in a room at the Great Hall of the People, the cavernous home of China’s national legislature, in remarks broadcast live by Indian television stations. He said, “I suggested that China should take a strategic and long-term view of our relations.” >> Read More
India has been ranked at a lowly 100 position on the global Human Capital Index, which measures countries on development and deployment of human capital.
Finland has topped the 124-nation list.
India is ranked lower than all its BRICS peers — Russia, China, Brazil and South Africa — and smaller neighbours like Sri Lanka, Bhutan and Bangladesh. But Pakistan follows at 113.
In the top 10 of the list, compiled by the World Economic Forum (WEF), Finland is followed by Norway, Switzerland, Canada, Japan, Sweden, Denmark, the Netherlands, New Zealand and Belgium.
WEF said the list has been compiled on the basis of 46 indicators about “how well countries are developing and deploying their human capital, focusing on education, skills and employment”.
“It aims to understand whether countries are wasting or leveraging their human potential,” it added.
>> Read More
The house always wins, but things are looking a little tough in Macau.
Casino revenue fell 38.8 per cent in April from a year ago, according to Bloomberg, versus estimates for a 39 per cent drop.
Monthly drops for the industry are becoming the norm, following a decade of high growth. The economy in the former Portuguese colony has been weighed down over the past year amid an official Chinese push to reduce corruption. The development has made high rolling mainland punters warier about publicly gambling in the enclave, which remains the only place in China where casinos are allowed.
Last year casino revenues in Macau saw their first full-year annual decline since records began in 2002.
The document envisions the establishment of a self-governing pool of contingent foreign currency reserves in order to counter possible pressure on the balance of payments in the BRICS countries.
The BRICS group of prominent emerging economies was established in 2010, when South Africa joined Brazil, Russia, India and China in what was previously known as BRIC.
In mid-2014, the BRICS members signed an agreement to establish the $100 billion BRICS New Development Bank, as well as a $100 billion reserve currency pool.
China is set to provide the largest share of $41 billion to the pool, while Russia, Brazil and India will provide $18 billion each. South Africa is set to chip in the remaining $5 billion.
Get ready for another major worldwide credit crunch. Today, the entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever. If you can believe it, the total amount of global debt has risen by $35 trillionsince the last crisis. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again.
For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“. And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone. On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States. All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.
Over the past six months, the Chinese stock market has exploded upward even as the overall Chinese economy has started to slow down. Investors have been using something called “umbrella trusts” to finance a lot of these stock purchases, and these umbrella trusts have given them the ability to have much more leverage than normal brokerage financing would allow. This works great as long as stocks go up. Once they start going down, the losses can be absolutely staggering.
That is why Chinese authorities are stepping in before this bubble gets even worse. Here is more about what has been going on in China from Bloomberg… >> Read More
Meanwhile, in China, things are “a lot worse than you think,” says Bloomberg metals analyst Kenneth Hoffman who recently visited the country to assess the outlook for metals demand. This doesn’t exactly come as a surprise. Falling demand from China has been a major factor in the collapse of iron ore prices which just today caused Australia’s fourth largest miner to suspend production altogether and which last month prompted Fortescue Chairman “Twiggy” Forrest to break out the old “let’s start a cartel” suggestion when discussing how to firm up prices. To let Bloomberg tell it, demand from China for the steelmaking ingredient won’t be picking up anytime soon:
China’s steel and metals markets, a barometer of the world’s second-biggest economy, are “a lot worse than you think,” according to a Bloomberg Intelligence analyst who just completed a tour of the country.
What he saw: idle cranes, empty construction sites and half-finished, abandoned buildings in several cities. Conversations with executives reinforced the “gloomy” outlook.
“China’s metals demand is plummeting,” wrote Kenneth Hoffman, the metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”
Prices for commodities from iron ore to coal are sinking as China’s leadership tries to steer the economy away from debt-fueled property investment and smokestack industries, embracing services and domestic-led consumption. At the same time,
President Xi Jinping is stepping up efforts to combat pollution, further squeezing industry.
“There is a big fear this is going to get worse before it gets better,” Hoffman said in an interview. “It’s as bad as the data looks, if not worse.”
>> Read More
Last week, a group of initially unidentified foreign troops disembarked in the Yemeni port city of Aden which is currently under siege by Iran-backed Rebels seeking to capture one of the last remaining major holdouts still controlled by fighters loyal to President Hadi. When the mystery soldiers arrived, the media made the somewhat logical assumption that a Saudi-led ground incursion had indeed begun. Surprisingly, the soldiers turned out to be Chinese and were in Yemen to ensure the safety of more than 200 civilians evacuating the city in an “unprecedented” move that at least according to one Chinese professor, makes China “look really good.” Here’s Reuters:
A Chinese naval frigate evacuated 225 foreign citizens from strife-torn Yemen, its foreign ministry said, marking the first time that China’s military has helped other countries evacuate their people during an international crisis.
Ten different nationalities were among the evacuees picked up on Thursday afternoon from Aden, Yemen’s second city, and transported to Djibouti, the Ministry of Foreign Affairs said in a statement on its website late Thursday.
A diplomatic source familiar with the operation said it was “very risky” and that fighting had come close to the Chinese warship.
>> Read More