3 May 2016
US Treasury puts China on new “Monitoring List” - ING
Tim Condon, Chief Economist at ING, suggests that their yearend USDCNY forecast, which assumes the authorities are pegging to a basket, is 6.47 (spot 6.48, Bloomberg consensus 6.69).
Key Quotes
“In the first manipulator report since the passage of a new trade act in 2015 the Treasury placed China, Japan, Korea, Taiwan and Germany on a new “Monitoring List” for unfair currency practices. The new act requires the Treasury designate as a manipulator a major trading partner with a large (> $20 billion) bilateral trade surplus, a large (> 3% of GDP) current account surplus and large (> 2% of GDP over the previous year) one-sided exchange market intervention.
China, Japan, Korea and Germany met the first two criteria and Taiwan met the first and third. Manipulators come in for “enhanced bilateral engagement” that within one year must bear fruit – “adopt appropriate policies to correct its undervaluation and external surpluses” – or the President is required to take remedial action.
The report’s bottom on China was: “Overall, the RMB should continue to experience real appreciation over the medium-term. Chinese authorities have stressed that the RMB will continue to be a strong currency, given China’s current accounts surplus, higher economic growth, large foreign exchange reserves, and stable fiscal and financial conditions.”
Key Quotes
“In the first manipulator report since the passage of a new trade act in 2015 the Treasury placed China, Japan, Korea, Taiwan and Germany on a new “Monitoring List” for unfair currency practices. The new act requires the Treasury designate as a manipulator a major trading partner with a large (> $20 billion) bilateral trade surplus, a large (> 3% of GDP) current account surplus and large (> 2% of GDP over the previous year) one-sided exchange market intervention.
China, Japan, Korea and Germany met the first two criteria and Taiwan met the first and third. Manipulators come in for “enhanced bilateral engagement” that within one year must bear fruit – “adopt appropriate policies to correct its undervaluation and external surpluses” – or the President is required to take remedial action.
The report’s bottom on China was: “Overall, the RMB should continue to experience real appreciation over the medium-term. Chinese authorities have stressed that the RMB will continue to be a strong currency, given China’s current accounts surplus, higher economic growth, large foreign exchange reserves, and stable fiscal and financial conditions.”