According to the deputy head of China’s National Development and Reform Commission, Mr. Zhang Xiaoqiang, there is a potential of huge amount of hot money to be channeled into China in 2010 in the expectation that RMB will be revalued (See Article from Business Week).  With the world’s fastest growing rate in GDP, China continues to be the top investment destination for investors around the world. China’s stock market and property market had an impressive run with huge volatility in 2009, and it seems that the interests from global investors are only elevated in the coming new year.

中国在2010年可能有巨量热钱涌入，主要基于人民币升值的预期。由于中国经济表现一直独秀，外汇盈余增加，出口反弹，一系列利好因素使国际游资极度看好中国资产价格以及人民币的增值潜力，估计这股洪流在10年只会愈演愈烈。

Yes, it is RMB, again and always. For economists and journalists all over the world, RMB policy is increasingly becoming an icon to be challenged and defeated. A recent article from Economist is one of such challengers. Unfortunately, the arguments from that article are not necessarily robust and convincing enough. Here goes the argument: 1) RMB should be revalued as RMB has depreciated 14% in the last 10 months. This argument can be defeated easily by looking at a currency chart for the last 18 months (See Graph from Chinatells). In fact, with a close look at the movement of world currency in the last 18 months, a peg policy to USD probably wins as it provides stability and predicatability, which is good news for corporates involved in international trade; 2) RMB shall be revalued to address the global ‘imbalance’. Another cliche, but even more unsounding than the first argument. In fact, the world economy has never been in a ‘balanced’ status and it would be a mistake to bark on the wrong tree to try to establish any causality between RMB policy and global imbalance (See Article from Chinatells). Continue (继续)

As the biggest creditor of USA, China plays a significant role in influencing the policy of Washington. However, China’s huge reserve in USD and US Treasury is also vulnerable to any meaningful move from US government’s fixcal policy and the move of other major creditors (See Graph from Chinatells). How China government deals with this dilemma is the main challenge in the near future (See Article from WSJ). Looking back into the history, GIC countries used to face a similar difficult situation. During the 1970s when oil crisis happened twice during that period, gulf countries went through a few strategies to defend their reserve in USD. First the oil producers propose to price the oil in alternative currencies; second OPEC countries let the oil price go up in part to compensate the value loss in USD, and last some OPEC members did shift the reserve from USD to others. It seems that some of the strategies that China government is using now is similar to the above. It takes time to review and judge whether China’s strategy will be successful in preserving the value of their reserve and in the meanwhile push Washington to be serious about Dollar’s value. Continue (继续)

The world is feeling the impact of Chinese, especially rich ones fully loaded with hard Cash (See Article from WSJ). Starting from Q2 of 2009, significant volume of mainland cash finds its way into nearby more open cities such as Hong Kong and Macau, pushing up the price of local property (See Article from chinatells). It is against the will of Beijing as there are regualtions to limit the capital outflow. However, there are countless ways to bypass such regulations and it is literally impossible to stop the flow. On the other hand, it reflects the need of Chinese rich to find an international city with first class infrastructure and decent education and healthcare system. Hong Kong ticks the boxes on the list and becomes one of the hot spot.

中国大陆富人云集。基于13亿人口基数，即使0。1%的富人人口也足以震撼全世界。至少香港明确感觉到了这种震撼。香港的高档住宅在09年上升了30%，主要就是由大陆富人撑起的一片天。大陆有有关政策限制资本外流，但是上有政策下有对策，香港由于其国际的开放性和较好的教育体系成为大陆富人向往的移民居所。

During President Obama’s visit to China in this week, currency is bound to be a central topic. It is not only about RMB, but also about USD. Just hours before Obama landed in Shanghai, the chairman of China Banking Regulation Commission Mr. Liu Mingkang already spoke to public and criticizing America’s weak dollar policy in flooding the world with speculative capitals (See Article from WSJ). I believe such a gesture is a warm up for the talk between China and US on currency. The exchange rate of RMB has recently attracted media spot lights particularly in the west (See Article from Chinatells). Apparently Obama is going to raise this issue to President Hu Jingtao during the Beijing meeting. Instead of waiting US to attack on RMB, China government is well prepared and could counter the attack by raising the issue of the value of USD. After all, if US government continues to let USD slide, there is no point for RMB to budge unilaterally. I forsee that a compromise shall be reached between Beijing and Washington on the value preservation of USD and progressive appreciation of RMB.

奥巴马此次访华的一个重要议题就是人民币汇率问题。对此中国政府有充分准备。一个有力的反击武器就是美元的币值。如果美国政府放任美元贬值，同时吹起股市和大宗商品的泡沫，那么中国政府为什么要在人民币问题上妥协呢?一个可能的结果是中美就美元币值和人民币汇率达成妥协，美国政府对美元币值的下滑设个底线，而中国政府也继续让人民币稳步升值。

Is it all about RMB? Or, it is all about RMB, fool! It seems to make a lot of sense if we link the happenings recently in a chronicle way. The logic goes like this: There is a huge imbalance in world economy and trade, notably the dramatic trade surplus from China and trade deficit from USA. One of the top mandate of Obama administration is to address this imbalance, by bringing down the account surplus of China and account deficit of America. One of the key measures to make it happen, seems to lie in the exchange rate of RMB, according to some academics and media from the West (See article from NYT). It seems, however, that China government is resisting such a change. By continually sticking to the argument that RMB exchange rate is purely internal, China government refuses to appreciate RMB, which is estimated to be 20% undervalued at least. American government is not in a position to enforce the revaluation of RMB, however, what they can do, is to loosen their own monetary policy and flood the market with cheap money. Under such a scenario, international speculators and investors borrow USD cheaply and pour the hot capital into China with an appreciation expectation. Continue (继续)

Since July last year, RMB has been almost re-pegged to USD at a rate of 6.8 with limited flexibility. With USD continues to slide against most other trading currencies, RMB follows the down trend as well. Such a change benefits Chinese export sector but hurts other competition such as Germany, Japan and Asean exporters as all their currency strengthened against USD (See Article from FT). The question is: will such a trend be sustainable? One of the imbalance of world economy is the excessive surplus and saving in China and excessive borrowing and spending in USA. World leaders have met together trying to correct the imbalance. However it seems now that such an imbalance has been itensified instead of correctified. That is why RMB becomes the focus of discussion again.

人民币汇率一向是最敏感的话题之一。最近关于人民币汇率的讨论有愈演愈烈之势。由于人民币和美元挂钩，而美元对其他货币频频贬值，这样人民币对其他货币也跟着贬值。这样一来中国的出口就比其他国家更有优势，而事实上其他主要出口国比如德国日本等确实受到了打击。如何解决这场矛盾纠纷将是未来国际金融的主要议题之一。

Is it fair for Chinese government to peg the exchange rate of RMB to USD at a fixed level? This is a tough question, and probably could lead to different answers depending on which side one is on. For the Asian neighbours of China, however, the answer is clearly no. China’s export sector has suffered slow down like everyone else due to the recession in the West. However, on a relative scale, China’s export sector suffers less and in fact walked out of the crisis in a better shape than the competition (see article here). One of the potential reasons is that RMB has not reduced the competitiveness of China’s export during a downtrend of USD as it is pegged at 6.8. Due to this reason, RMB actually deprecitaed significantly to EUR or JPY following the sinking of USD. Continue (继续)