"We Track the Financial Collapse For You, so You'll Thrive and Profit, In Spite of It... "

Fortunes will soon be made (and saved). Subscribe for free now. Get our vital, dispatches on gold, silver and sound-money delivered to your email inbox daily.

This field is for validation purposes and should be left unchanged.

Safeguard your financial future. Get our crucial, daily updates.

"We Track the Financial Collapse For You,
so You'll Thrive and Profit, In Spite of It... "

Fortunes will soon be made (and saved). Subscribe for free now. Get our vital, dispatches on gold, silver and sound-money delivered to your email inbox daily.

This field is for validation purposes and should be left unchanged.

Welcome To The Currency War, China Edition

Here’s one for the “seriously, you’re surprised?” file: China pegs its currency, the yuan, to the dollar, the dollar soars, taking the yuan with it…and fewer foreigners buy suddenly-much-more-expensive Chinese products. Duh.

China’s Export Engine Loses Steam, Adding to Growth Pressure

China’s exports unexpectedly slumped last month, eroding the outlook for one of the economy’s better performing areas in recent months.

Overseas shipments fell 14.6 percent in March from a year earlier in yuan value, the customs administration said in Beijing on Monday. That compared with the median estimate for an 8.2 percent rise in a Bloomberg News survey of analysts. Imports slid 12.3 percent, leaving a trade surplus of 18.16 billion yuan ($3 billion).

The export declines come as China grapples with overcapacity and a property slump. The country’s central bank has relaxed rules on home purchasing, cut interest rates twice and reduced the ratio of reserves banks are required to set aside in the past six months, with economists forecasting further stimulus.

“Consumption is weak, investment is decelerating, and now exports have come in as weaker-than-expected,” said Liu Xuezhi, an economist with Bank of Communications Co. in Shanghai. “Downward pressure on economic growth is increasing, making it more urgent for the government to start rolling out more pro-growth policies.”

The Hang Seng index in Hong Kong pared gains after the release and the Australian dollar, seen as a proxy for China’s economy due to Australia’s shipments of raw materials, fell.

Gross domestic product data scheduled for Wednesday will probably show the economy expanded 7 percent in the first quarter from a year earlier, according to the median estimate of 38 economists in a Bloomberg survey as of April 10. That would be the slowest pace since the first quarter of 2009.

The “dismal” March export performance comes despite a higher number of working days and a low base and will spur fears that foreign demand is being undermined by a stronger yuan, Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong, wrote in note after the release.

The yuan may weaken and onshore rates will be lowered, he wrote. “Odds are also rising for more government stimulus.”

So the question isn’t whether Chinese exports should fall — obviously when you raise the value of your currency by 25% the stuff you’re selling becomes more expensive and fewer orders get booked. It’s why would economists expect exports to rise by 8% in the face of a soaring yuan and slowing growth pretty much everywhere else. See Is The Whole World Slowing Down?

Or maybe there’s a deeper strategy at work. Assume that the leveraged speculating community which, since it includes the money center banks, employs most of the high-profile economists whose estimates get quoted by reporters, is desperate for more easy money to bail out their bad derivatives bets. What better way to get it than to produce ridiculously optimistic estimates of Chinese growth which are then “missed” by a mile, leading to panicked calls for more stimulus. Now it all makes sense.

11 thoughts on "Welcome To The Currency War, China Edition"

  1. Makes sense. Question I have is when will China de-peg from the USD and devalue it’s currency to give it’s exports a boost. Move could be significant. And I’m guessing USD would soar even higher…. Any thoughts?

    1. In the past 5 years they have repegged the yuan from 8 to the dollar to 6, making their own imports of foodstuffs, fuel and other raw materials that much cheaper for them and more expensive for us. How much more inflation do you want?

      1. It is not what I want 🙂
        I’m just guessing, since they are hurting while pegged to USD, they may be forced to de-peg if USD stay strong or goes even higher. And they are not so small economy any more. If their currency drops say 15-20%, wouldn’t that mean USD will go higher? But yes, stronger currency makes imports cheaper and China does need raw materials… What is more important to China revenues from exports or savings from cheaper imports?

        1. Exports will always be important, but they are in the midst of massive infrastructure construction, such as high speed rail, which will further open the less-developed interior, and the windfall due to low resource pricing to them is only a tailwind. Only the MSM pretends that competitive currency devaluations, which amount to putting workers on starvation wages, are a good thing.

          1. I never said that competitive currency devaluations are good thing. In your first response to me you implied that I want this. Now you are imping how I think this is a good thing. What is wrong with you? You like to twist other peoples words so you can then attack them? You think other people can’t have opinion? (if they do gets attacked by you) Well, I have it with you. You are now on ignore and labeled as looser. Have fun.

          2. I didn’t suggest that you did and am sorry if you took offense (though I might point out that only losers label others as loosers)

  2. – China still has currency controls. And that’s why I think they will devalue the yuan somewhere in the coming months.

  3. Sounds plausible, John, your read of the rationale for the silly Street estimates. Thanks for the clear explanation of this!

Leave a Reply

Your email address will not be published. Required fields are marked *


Zero Fees Gold IRA

Contact Us

Send Us Your Video Links

Send us a message.
We value your feedback,
questions and advice.



Cut through the clutter and mainstream media noise. Get free, concise dispatches on vital news, videos and opinions. Delivered to Your email inbox daily. You’ll never miss a critical story, guaranteed.

This field is for validation purposes and should be left unchanged.