Top Priority: Reverse Yuan Depreciation Expectations

The articles attacking depreciation expectations and capital outflows are failing at their job because they are priming Chinese minds for depreciation. Dump stocks, dump property, get your money out of the country. Also, this article below in particular highlights the impossible bind China is in. There is no painless choice. If China prints money, the currency will devalue. If China doesn't print money (if this is even possible without doing another forced stimulus like 2008), deflation will accelerate. As I read about China using more tricks to defend the currency, which ironically make the yuan less attractive, instead of reforms such as opening the market to foreigners, cutting taxes, cutting regulations, etc. it does not inspire confidence. Eventually, they will get around to doing the one thing that will restore confidence and completely end depreciation expectations: a large one-off devaluation. Until then...

First, the US economy has fully recovered, has entered a new round of growth, the unemployment rate low by historical standards, the trend of international capital flows into the United States appear attractive dollar gradually strengthened. In this context, a sharp devaluation of the renminbi will further accelerate capital flows to the United States.

Second, the sharp depreciation of the RMB will cause capital to flee. Arbitrage capital and industrial capital is difficult to strictly distinguish, they are often mixed together. When a sharp devaluation of RMB, and when international investors expect the yuan will further depreciate, to knot profits or minimize losses, arbitrage capital and industrial capital will be mixed together to escape.

　　Third, the yuan depreciated considerably in the next period of time is difficult to attract international capital, including the so-called industrial capital account inflows. If we want capital is divided into so-called arbitrage capital and industrial capital, then devaluation will attract industrial capital is a prerequisite condition. In the case of international capital it expected China's economy will be a big problem, which is expected to change before this is not going to enter China.

　　Fourth, the sharp depreciation of the yuan would trigger the stock market crash and the property market a big problem. Even the so-called industrial capital to enter China after a certain period, and before that, the capital of China's economy due to the sharp depreciation of the yuan caused substantial outflow, the stock market, property market a big shock, which is China's economy can not afford.

　　Fifth, the sharp depreciation of the RMB will cause investors to lose confidence in the Chinese economy is not conducive to China's economic stability. In accordance with the basic principles of economics, the sharp depreciation of a currency in the short term, often lead to financial crisis. Therefore, short-term renminbi devaluation would interfere with the stability of the Chinese economy.

　　Sixth, the sharp depreciation of the yuan against the positive effects of exports is rather limited. Determine a country's exports a variety of factors, including exchange rates, labor costs, land costs, factory rent costs, export products brand value, decreased demand for Chinese exports, the real economy is not the core difficulties overvalued exchange rate, and It is that land costs rise too fast, and the resulting rise in labor costs is the low brand value of Chinese exports. Therefore, the RMB devaluation to promote exports, to solve the real economy, operational difficulties role is very limited.

　　Seventh, the sharp depreciation of the renminbi will greatly affect investor confidence. A currency devaluation would destroy investor confidence in the country will strengthen investor expectations of further depreciation of the currency, and then to wait and see and even short-term escape behavior.

　　The eight, the yuan depreciated against the RMB internationalization. Internationalization of the RMB, the most important prerequisite is that the value of international recognition of the renminbi, the sharp depreciation of the renminbi is not conducive to enhancing the international identity of the renminbi.

What is the solution? There is none.

First, the stability of the RMB exchange rate, to avoid the sharp depreciation of the yuan.

Not a solution.

The second is to continue to implement loose monetary policy.

Will increase depreciation expectations.

Third, over the next three to five years is a critical period of China's industrial structure adjustment, monetary policy should focus on guiding the flow of currency. China's industrial restructuring objective is to gradually establish a high-end manufacturing and modern service-oriented industrial structure, which requires monetary policy should adapt to this trend, a structural guide monetary flows, and guide more funds to invest in high-end manufacturing and modern services.

Overcapacity!

Fourth, make full use of monetary easing international environment. The next 3 to 5 years for the Chinese economy is particularly critical, wrong monetary policy will miss important development opportunity of China's economy. Currently, the United States has entered a new round of growth, US monetary policy over the next 10 to 20 years of orientation, may gradually shift from loose neutral, then from neutral trend tightened. This is to a large extent will increase the devaluation pressure. However, the EU and Japan also face downward pressure in the next three to five years, these two economies will continue to implement loose monetary policy. This gives China the next three to five years to continue to implement loose monetary policy to stimulate economic growth, opportunity, if appropriate monetary policy, the RMB against the euro and yen appreciation will maintain a certain posture, to attract international capital is advantageous.

Now you're on to something, except if the goal is to depreciate less than the euro and yen, do nothing and let nature take its course.

Sohu: 当务之急是扭转人民币贬值预期