The chinese government is vigorously combating arbitrage. What would have happened if the renminbi had not been stopped and allowed to appreciate? The increase in interest rates, the constant influx of “hot money” from abroad, the ongoing borrowing of foreign debt by domestic firms, the severe impact on the real economy, the domestic marketization of the renminbi and the high level of internationalization, and the day when the renminbi's exchange rate is reversed, the “hot money” retreats with returns, a financial crisis that exceeds that of south-east asia or a massive outbreak。
What would happen if, if left unchecked, the renminbi depreciated? The devaluation of the renminbi, the slow pace of reform of the renminbi's internationalization and marketization, the fact that the domestic currency runs through the mountains of gold, the unadjusted structure of the economy, chinese products that compete on the basis of zero-profit cost advantage, the ability to innovate is flooded, china's products are subject to trade barriers, free trade agreements are cut off, and cost advantages are lost, and finally, in a long crisis of excess capacity, china's economy has gone into a prolonged depression。
The progressive marketization of the renminbi and its internationalization are necessary options for economic restructuring, not to please anyone, but in the context of china's economic restructuring. But in the process of internationalization, the renminbi must be manageable and the risk reversible; otherwise, the renminbi would be subject to the old traders in international trading markets and lose its independent character。
While the rmb offshore centres bloom in london, singapore and hong kong, the shanghai free trade zone has also taken on the important task of internationalizing the rmb. While opening up, two battles began。
The first is to use uncertainty in the direction of the rmb exchange rate to counter the arbitrage. From the beginning of january to the beginning of june this year, the renminbi depreciated by 1. 12 per cent against the united states dollar intermediate value, or 3. 55 per cent against the current value, and its real effective exchange rate index weakened. If we start with 6. 0969 on 31 december last year, the median rmb exchange rate has depreciated by 537 basis points since this year, at 0. 88 per cent. Foreign-exchange hedge funds, which are essentially leveraged, have lost all of this round of the renminbi exchange rate depreciation, and the most lucrative profits have been swallowed up。
It is far from over, as the market’s expectations of the renminbi’s exchange rate go down, and as china’s economy swung down, the micro-stimulation led to a rise in china’s macroeconomic data and a sharp rise in exports in may. After more than three months of continuous depreciation, the renminbi received 6. 2107 dollars per week in the week of 12 june, with a weekly increase of 0. 64 per cent, the largest increase since december 2011. On 4 of the 5 trading days on the same day, the median value of the renminbi was rising, with the median price increasing by 138 points on 8 june, compared with the previous date, with the largest increase in a single day for 20 months. This is the result of the guidance。
As a result, there is no way to go for more or less money to be made unilaterally, investors’ expectations are completely reversed, with only one thing to be sure, these “hot money” or hedge fund managers can only throw in, and under current circumstances they cannot win battles, and central banks are becoming more and more effective in the us and europe。
The second is to combat financing fraud. The commodity-financing fraud survey in qingdao port has been so intense that the british metal monitor, the first to report the qingdao survey, reported on 4 june that market rumours about the value of the goods covered by the survey had risen from $250 million to over $1 billion. As of the week of 12 june, port pomley had also been questioned with the involvement of traders such as citigroup, slags and sino-sino-sino-sino-sino-sino groups。
Double pledge financing for imports like steel trade is an important means of expanding the currency. Earlier, wall street news articles cited goldman sachs research data: china's commodity finance was $160 billion, or about 31 per cent of china's total short-term external debt, gold, copper and iron ore were the most used collateral for financing, and soybeans, palm oil, rubber, nickel, zinc and aluminium. The goldman sachs chart shows that more than 70 per cent of the global stock of open bonded copper is used for repurchase financing or commodity financing, and there are indications that an increasing number of stocks are flowing out of bonded warehouses。
As the investigation deepens, large commodity finance will shrink sharply, china’s shadow banks will contract further, and even half of the contraction will leave the market at around rmb 500 billion. In addition, short-term lending to hong kong by mainland companies has been heavily regulated, and last week the hong kong monetary authority revealed that the total amount of loans provided by hong kong banks to mainland businesses and banks increased by 32 per cent last year to $465 billion. Rating companies are well-known for the increased risk exposure of local and foreign banks in hong kong, china, to mainland china, bringing the total to $798 billion. Other asia-pacific banks — mainly australia, japan and macao, china — have provided approximately $400 billion in loans to mainland china, using data from bis. The hong kong monetary authority has strengthened its supervision and may in the future use technical parameters, such as loan ratios, which have become difficult for individuals from the mainland to open accounts in hong kong。
While the rmb’s internationalization and marketization are more stringently regulated than most people expected, it is not surprising that the chinese government’s top choice is to be made by fear of market disorder, debt overhang, re-emergence of steel trade, the establishment of a financial order, and the establishment of controlled sources of credit-guaranteed financing。
