I don't know why China did it to its currency, especially the last 2 said cases in 2015 and 2019. It deserves a research. Does anybody know whether a reasoning was given? I can only speculate: maybe they have become prey by the US & Co, and they saw no other way than fixing it that way, or: one of their used pegged underlyings had a sudden abnormal falling or rising (again maybe done by US & Co, maybe the oil price drop last year). As said, deserves indeed a rationale explanation. I would have not expected such a step from China, but one never knows...
1. China had a GDP of $13.61 Trillion USD in 2018. Hardly makes them "prey" - not by any rational definition. 2. An OECD study in 2017, covering 40 countries, found that outside China there were close to 2,500 State Owned Enterprises, but China alone has over 50,000. How is that "free trade" exactly? State Owned Enterprises are an unfair subsidy that distorts market pricing and squeezes out Companies that are not subsidized by governments.
China has a different economic model. It's up to themselves, not to any foreigners how they have to organize their economy. Just imagine, that in the future we make contact to aliens. Will you tell or even try to force them to change their economy and society? It won't work. That same principle of respecting the other as is should apply also between the very nations here on Earth, ie. w/o interfering in internal matters of other nations. And: what if the other nation argues similar, but different, about your nation?...
Yeah, but the Chinese Communist Party can't have it both ways - which gets back to my original argument on why Yuan-denominated debt might be so unattractive to foreign institutional investors. If you're holding paper that pays a 1.5% Coupon from the People's Bank of China, and the People's Bank of China unilaterally decides to devalue the underlying currency valuation of said paper - getting back to the thread title exactly how is that attractive to foreign investors?
@bone, I can't answer your question, also b/c I'm not a currency trader. Maybe someone else will answer. My point about China is just this: they did damn well in the last decades, one should respect their achievements. Soon they will be the #1 economy on Earth. So, what? I've no problem with that, I even would congratulate them. Maybe they will be a better world leader than what we have had since WW2. A worser one than what we had I cannot imagine...
The Chinese Communist Party demands that other economies use the Yuan as an international reserve currency, but they are unwilling to allow the Yuan to float on international markets like the US Dollar or the Euro or the Swiss Franc or the Japanese Yen or the Pound Sterling or the Australian Dollar.
Yeah, the US Marshall Plan and the US reconstruction of Japan and the US rebuilding of South Korea were just terrible - really set Western Europe, Japan, and South Korea back. Stalin and Mao were so much better. Google: “The Great Leap Forward” 1958-1962. “The Cultural Revolution” 1966-1976.
is the goose laying golden eggs? I guess not, just simply money chasing (no real wealth is actually created). from cnbc China braces for more defaults among state firms in 2021 — and that could be a good thing PUBLISHED THU, NOV 26 20208:18 PM ESTUPDATED AN HOUR AGO Yen Nee Lee @YENNEE_LEE KEY POINTS Several Chinese state-linked entities have recently failed to pay back their debt, including miner Yongcheng Coal and Electricity, chipmaker Tsinghua Unigroup and Huachen Automotive Group. That string of defaults — which include highly rated entities — have challenged investors’ assumption of an “implicit guarantee” that Chinese authorities would save those that run into trouble. Although defaults by large state-linked companies hurt sentiment in the short term, allowing some of these “zombie” businesses to fail will benefit banks and investors in the long run, analysts said. A Chinese national flag seen in front of Oriental Pearl Tower in Shanghai on September 8, 2019. A Chinese national flag seen in front of Oriental Pearl Tower in Shanghai on September 8, 2019. Alex Tai | SOPA Images | LightRocket via Getty Images SINGAPORE — Bond defaults by Chinese state-linked companies are set to continue into the new year, but analysts say that may be a good thing in the long run as “zombie” entities are weeded out. Investors usually consider government-backed companies a safe bet given the “implicit guarantee” that Chinese authorities would save those that run into trouble. However, a string of defaults in recent weeks — including by highly rated entities — have challenged that assumption. Some high-profile state-linked businesses that have recently defaulted on their debt repayments include miner Yongcheng Coal and Electricity, chipmaker Tsinghua Unigroup and Huachen Automotive Group. Market participants have once again been reminded that not all state-owned enterprises (SOEs) are created the same; some are less equal than others. CreditSights “Market participants have once again been reminded that not all state-owned enterprises (SOEs) are created the same; some are less equal than others,” analysts from CreditSights, a research firm, wrote in a Monday report. “As the spate of defaults has shown, support conferred by state ownership is more nuanced and the Chinese government on balance is more tolerant of defaults,” they added. “SOEs which are not in strategically important industries or have strayed from their core businesses may not be rescued by the state.” ‘Zombie’ companies The default by Yongcheng Coal and Electricity surprised many investors given its AAA-rating by a domestic agency. But the company is “a typical example of a large risky company” that China’s central bank flagged earlier this month, said analysts from investment bank Jefferies. The People’s Bank of China warned in its financial stability report — according to CNBC’s translation of the Mandarin-language text — that the following problems in some large companies could become a risk to the entire economy: Aggressive expansion into various industries and regions which accumulate debt exceeding the companies’ repayment abilities. Corporate governance issues such as complex chains of borrowing within a group of companies, hidden inter-group transactions and inaccurate disclosures. Reliance on borrowing to make debt repayments. “Arguably, these problems are relevant” to Yongcheng Coal and Electricity, Jefferies analysts said in a Thursday report. WATCH NOW VIDEO03:02 Recent China debt defaults do not pose a systemic risk: BlackRock Although defaults by large state-linked companies hurt sentiment in the short term, allowing some of these “zombie” firms to fail will benefit banks and investors in the long run, the analysts said. For banks, weeding out problematic companies allows them to identify risks early and choose “quality” collaterals for those risks, they said. Overall, some insolvencies and defaults are “part of a healthy, functioning market as long as wider contagion is avoided and the process has a relatively controlled trajectory,” said CreditSights. The research firm explained that allowing “unviable entities” to go under will free up resources, promote renewal, nurture “greater economic dynamism” in China, and reduce the specter of “zombie” SOEs. More defaults to come Following the recent string of defaults, Chinese authorities have reportedly vowed “zero tolerance” for misconduct among bond issuers. Regulators have launched probes into Yongcheng Coal and Electricity and Huachen Automotive Group, as well as their bond underwriters, reported Reuters. That won’t stop more defaults among state firms. ... ultimately we have confidence that China has the political will and policymaking capacity to steer the market back into calmer waters. CreditSights “This is not the first time that onshore defaults have sparked worries and it will not be the last — ultimately we have confidence that China has the political will and policymaking capacity to steer the market back into calmer waters,” said CreditSights. Ratings agency Fitch said in a report last week that the number of SOE defaults could “rise marginally” in 2021 on the back of a likely tightening in funding conditions in China. “China’s central bank has shifted towards a more neutral policy stance, with economic growth recovering from the impact of the coronavirus pandemic, and we expect tighter funding conditions in 2021 than in early 2020,” the agency said. WATCH NOW VIDEO02:50 China market remains positive despite emerging defaults: Aberdeen Standard “Weaker SOEs in sectors with overcapacity or commercialised sectors face higher default risk due to a lower probability of receiving state support,” it added. But the average default risk of SOEs remains lower than that of private companies, said Fitch. The agency pointed out that 20 private firms defaulted on their onshore bonds from January to October this year, compared with five state companies that did so in the same period. — CNBC’s Weizhen Tan contributed to this report.