Trump misses tar­get with China on­slaught: Ex­perts

Kuwait Times - - BUSINESS -

BEI­JING: US Pres­i­dent-elect Don­ald Trump ac­cuses China of keep­ing its yuan cur­rency ar­ti­fi­cially low and slap­ping un­fair taxes on Amer­i­can ex­ports. How­ever, an­a­lysts say Bei­jing is in fact strug­gling to prop up the yuan as cap­i­tal flows out of Chi­naís flag­ging econ­omy in search of bet­ter in­vest­ments in the United States. ‘Did China ask us if it was OK to de­value their cur­rency (mak­ing it hard for our com­pa­nies to com­pete), heav­ily tax our prod­ucts go­ing into their coun­try (the US does­nít tax them)?’ Trump wrote Sun­day in a Twit­ter out­burst. ‘I donít think so!’

China keeps close con­trols on its cur­rency, al­low­ing it to fluc­tu­ate within a two per­cent mar­gin from a point fixed by the cen­tral bank each day. And its value has been steadily drop­ping for over a year. The yuan, also known as the ren­minbi, is cur­rently at an eight-year low of 6.89 to the dol­lar. Yet the ev­i­dence sug­gests the cur­rency is over, not un­der, val­ued. On Au­gust 2015, the Peo­pleís Bank of China an­nounced a sur­prise five per­cent de­val­u­a­tion of the yuan. Since then, the cur­rency has fallen an­other six per­cent. The ini­tial de­val­u­a­tion, Bei­jing said, was in­tended to make the yuan trade closer to its mar­ket value as the coun­try lob­bied to have the unit join the In­ter­na­tional Mon­e­tary Fundís elite bas­ket of cur­ren­ciesónot help ex­porters, as Trump claims.

But down­ward pres­sure proved to be stronger than ex­pected, and since that time the PBoC has been scram­bling to prop it up. China is hem­or­rhag­ing for­eign cur­rency re­serves. Data re­leased on Wed­nes­day show they plunged by $69 bil­lion in Novem­ber alone. China has spent that money on buy­ing back its own cur­rency, an­a­lysts say, in an ef­fort to keep the yuanís value ar­ti­fi­cially higher.

China prefers to see ‘the yuan strengthen, or at least be sta­ble’, to avoid volatil­ity that com­pro­mises the cur­ren­cyís evolv­ing in­ter­na­tion­al­i­sa­tion, Credit Agri­cole an­a­lyst Dar­iusz Kowal­czyk said.

Mean­while, the US dol­lar is soar­ing on ex­pec­ta­tions Trump will em­bark on an in­fra­struc­ture spend­ing spree that would fan in­fla­tion and force the Fed­eral Re­serve to hike in­ter­est rates. That ex­pec­ta­tion is fu­elling de­mand for US as­set­só­caus­ing cap­i­tal to flee China and other emerg­ing mar­kets.

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