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FUNDAMENTAL ANALYSIS

Greater China and the USD/CNY

fundamental analysis Greater China and the USD CNY

Greater China is an interesting topic, as its domestic culture in business and governance has broken many conventions and standard practices in modern day capitalism. If you are a believer that history repeats itself, and comparing modern day’s growth in China to its 18th century history, you may decipher that we are just at the beginning to witness the emergence of the superpower that just woke up from its deep sleep.

From ECA International Survey, Shanghai’s cost of living ranks 3rd highest in Asia, and Beijing ranks 4th in Asia. In February 2014, China widened the USD/CNY’s trading band from its fixing; from its original 1% to the current 2%. As a result, we saw a sharp 4% decline in RMB in February 2014. With this trading band widened, this increased USDCNY’s volatility, a sign that the PBoC (People’s Bank of China), its central bank, is moving ahead to further lax its currency control, and in hope to reduce speculative ‘hot money’ flowing into their economic pipelines due to the RMB’s continued appreciation. This was an effective move, as in March 2014, we saw outflows of US$30Billion in China’s Foreign Exchange Reserves.

* The CNY is a managed float, and subject to a Daily Fix, where the central bank benchmarks its exchange rate on a daily basis.

fundamental analysis Greater China and the USD CNY World GDP China Export Growth

Chart 1: World GDP versus China Export Growth

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