I was on Bloomberg TV discussing China with Scarlet Fu and Erik Schatzker. We talked mostly about China, SDRs, and a bit about emerging markets more broadly. Click here for the link.
The key points I made included that the IMF has not made a decision about the yuan's inclusion in the SDR. There has been a proposal to delay the implementation until next September, but not the actual decision.
I also resisted ideas that this is a currency war. I noted as I have in my commentary on these pages that the US Treasury, the IMF, and at least the President of the NY Fed do not recognize China's move as a currency war. Implementation is important, but the US (and IMF) have been encouraging and cajoling Chinese officials to allow market forces to have greater sway in setting the yuan's exchange rate. Given that the Chinese economy is slowing and that the yuan has been appreciating against most currencies but the dollar, if market forces were in fact given more of a say, the yuan would likely weaken.
I discussed why the small move in the currency is unlikely to boost exports. Simply put, China companies typically do not incur large yuan costs. Many semi-finished goods are imported, outside of from Hong Kong, much are still paid for in US dollars. Hard working Chinese people assemble the product and then export it. These labor costs and some transportation costs are incurred in yuan.
Lastly, I also suggested that because of the US corporate strategy of direct investment, slowing of Chinese demand may encourage US companies to reduce their staffs in China not the US. Many people still confuse the US expansion strategy with the export-orientation of, say Germany or Finland or China.
Cool Video: China and a little Turkey on Bloomberg TV
Reviewed by Marc Chandler
on
August 13, 2015
Rating:
Reviewed by Marc Chandler
on
August 13, 2015
Rating:
