China Seminar's blog

During the “Two Sessions”, China’s Premier Wen Jiabao and the State Administrator of Foreign Exchange Yi Gang both said that the Renminbi might be close to the “equilibrium” level. This top-level comment could probably mark a much lower Renminbi appreciation this year and the advent of RMB’s two-way floating process. Last September, the long-standing consensus of one-way Renminbi appreciation was challenged for the first time since 2005 when the PBoC allowed Renminbi to appreciate against USD. Afterwards, in the onshore market, USDCNY hit lower trading bound set by the PBoC for 12 consecutive days in December; FX purchase by the banks dropped for three straight months in Q4. Read more

An interesting debate is taking place among the top financial regulators and bankers in China.

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Following our previous posting on USDCNY decomposition, we further explore the intraday movements in recent three months, and its difference with 2008 CNY selloff period.

                    Source: Bloomberg. Data as of Dec 30, 2011.

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As a seminar focusing on China’s monetary policy, we’ve always been interested in the use of monetary instruments by People’s Bank of China (PBoC). In this posting, we’d like to wrap up the core elements of our past discussions on PBoC instruments.

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Suggested by our instructor Logan, we draw the following chart, which decomposes onshore USDCNY price movements into two parts, interday and intraday.

            Source: Bloomberg. Data as of Dec 16, 2011.

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Chinese FX reserves have reached $3.2 trillion. The majority of the FX reserves are accumulated through financial institutions, such as commercial banks, purchases of dollars from corporations and households. As an article in September 26th edition of the South China Morning Post puts it:

Let's look at one of these assets "left on bank balance sheets", an item obscurely classified in the official statistics as "financial institutions position for forex purchases". This category of assets now amounts to 25.3 trillion yuan.

The recent currency bill passed by the US Senate has once again drawn attention to the Sino-US trade issue and the colossal foreign exchange reserves accumulated by the PBoC, China's central bank, as a result of years of Chinese surplus. Chinese FX reserves have increased by 17.2 times from 166 billion USD in 2000 to 3.2 trillion USD in September 2011, an annual growth rate of 29.5% from 2000 to 2010. The pile of reserve assets on PBoC’s balance sheet is impressive, but is it good policy for China keep such a high foreign reserve?

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During a recent seminar, we heatedly discussed the following news from the Global Times:

Compared with the end of August, the top four state-owned Chinese banks, including the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank, saw total deposit outflows of about 420 billion yuan ($65.63 billion) during the first 15 days of September, according to a report by China Securities Journal on Thursday.

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A huge debt of RMB 2.1 trillion (330 billion USD) as well as serious funding problems—how will the Ministry of Railways handle it? Or more precisely, how will the behind-the-scenes decision-maker, China’s central government deal with this issue? We think there are three ways out of the debt mess.

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On September 21, almost two months after the July 23 Wenzhou high-speed train crash, the announcement of an investigation progress was eventually placed on Xinhua.net. However, neither the cause of the accident nor a timetable to make that public was revealed. Aside from the crash details, there’s one more thing that Chinese government anxiously wants to hide from the public eye: the debt issue of Ministry of Railways (MoR).

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