China remains to be the centre of global concerns as investors dubious the country's core growth momentum, the pace of capital outflows and reform plans etc.
The recent turmoil in equity and FX markets, coupled with uncertainties in global demand and financial conditions, has highlighted further downside risks to the outlook.
The gross domestic product in China expanded 1.6 percent in the December quarter of 2015, slowing from 1.8 percent growth in the third quarter and slightly below market consensus of a 1.7 percent expansion. It is the weakest growth since the first quarter of 2014.
While, SDR status was finally approved for the RMB, which is a symbolic and political milestone in China's long march toward internationalising the RMB. Since the decision, CNH is the worst performing Asian currency, with CNY not too far behind as PBC relaxed its tight grip through higher central parities for USD/CNY and reduced intervention to limit USD/CNH and USD/CNY gains. USD/CNY has since traded up though the post devaluation spike, while USD/CNH is not far off doing the same.
This has prompted some inaccurate assessments that China is devaluing the RMB. In mid-December, a Guest Commentator of CFETS published an editorial (which was also published on the PBC's website) highlighting that "the bilateral RMB-USD exchange rate is not considered a good indicator of the international parity of tradable goods" and that "it is more desirable to refer to both the bilateral RMB-USD exchange rate and exchange rate based on a basket of currencies.
A basket of currencies can better capture the competitiveness of a country's goods and services, and better enable the exchange rate to adjust import, export, investment activities and the balance of payments position".
One of the research Asian research team is about to conduct the analysis on following areas,
What is the ultimate game plan for the CNY? What are the remaining options of China's FX policy and other macro policies down the road?
How can China balance the multiple and inconsistent objectives, for example, capacity reduction, destocking and deleveraging while maintaining a 6.5-7% growth target?
How can China prevent a financial market meltdown given rising leverage and NPLs, expected bankruptcies, and shadow banking risks?
We would come up with inferences as soon as we get it updated.
