2014-03-08

Why Did the Chinese Yuan Plunge?

There's a potentially fundamental reason why the Chinese yuan declined recently: the foreign exchange reserves declined. There are no official numbers yet, but China had a $23 billion trade deficit in February.

China sees trade deficit in February
Total trade volume dropped by 4.8 percent year on year in February to 251.18 billion U.S. dollars, the General Administration of Customs said in a statement.

Trade deficit stood at 22.98 billion U.S. dollars, compared with a surplus of 14.8 billion U.S. dollars last February, the statement said.
Some "experts" blame Chinese New Year, but Spring Festival fell on February 10 in 2013 versus January 31 this year.

Straight from the government report: 前2个月外贸略有增长 春节因素导致月度增速波动. All of these numbers are totals for 2014 (Jan + Feb).
China's export of electro-mechanical products 1.1 trillion yuan, down 5.7%, accounting for 56.6% of total exports.
Among them, the electrical and electronics exports 457.95 billion yuan, down 10.2%;
machinery and equipment 359.64 billion yuan, down 1.7%.
Apparel exports 151.22 billion yuan, down 7.7%;
textiles 90.18 billion yuan, down 4.7%;
footwear 53.91 billion yuan, down 3.1%;
furniture 47.91 billion yuan, down 13.5%;
plastic products 32.58 billion yuan, an increase of 5.8%;
Bags 24.05 billion yuan, down 13.3%;
toys 9.3 billion yuan, an increase of 4.5%;
the seven categories of labor-intensive products in total exports 409.16 billion yuan, down 6.4%, accounting for 20.8% of total exports.  

In imports, the main commodity imports increased and there was a general decline in average import price.
China imported 150 million tons of iron ore, an increase of 21.8%, the average import price of 795 yuan per ton, down 3.9%;
crude oil 51.205 million tons, an increase of 11.5%, the average import price of 4832.4 yuan per ton, down 3.8%;
soybeans 10.723 million tons, an increase of 40.1%, the average import price of 3500.8 yuan per ton, down 10.9%;
6.176 million tons of refined oil, decreased by 15.4% and average import price of 4828.2 yuan per ton, down 0.1%;
primary forms Plastic 4,428,000 tons, an increase of 22.6%, the average import price of 12,000 yuan per ton, down 0.5%;
steel 2,339,000 tons, an increase of 16.8%, the average import price of 7596.4 yuan per ton, up 1.2%;
unwrought copper and copper 915,000 tons, an increase of 41.2%, the average import price of 46,000 yuan per ton, down 10.7%;
unwrought aluminum and aluminum 205,000 tons, an increase of 78.8%, the average import price of 21,000 yuan per ton, down 30.8 %.
In addition, imports of machinery and electronic products 733.96 billion yuan, down 0.9%; which 197,000 cars, an increase of 50.3%.

From an article now unaccessible online:
Everbright Securities macroeconomic analyst He Yuanyuan found in the fourth quarter of last year and April this year, the central bank bought yuan and dumped foreign currency (expressed as a reduction in the total of foreign currency assets). This shows that China's central bank is in the market to support the RMB exchange rate, to prevent it from excessive devaluation. This shows from another perspective, the pressure of RMB devaluation.
The time frame in question is the end of 2011 and April 2012.

Here are previous post on yuan weakness, most recent first.

The Logic of Strategy: Yuan Devaluation and the Road to Trade War
Andy Xie Warns of Yuan Devaluation
Andy Xie on China's Cash Crunch
More On Yuan Depreciation, China's Great Depression
Chinese Yuan Could Devalue 50% Or More
Liu Jun Luo predicts 40% devaluation of renminbi in 2013 (He has been off by about 1-2 years on his predictions.)
PBOC can't buy a buck; talk of depleted reserves is not alarmist
Chinese foreign reserves to peak in 2014? What about within the next year?
Yuan collapse goes mainstream as Financial Times discovers the yuan can drop; exchange rate hyperinflation cometh?
Albert Edwards agrees: wider yuan band can allow faster devaluation of renminbi
Chinese yuan depreciation coming soon?

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