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February 14, 2016 6:07 am
PBoC governor downplays forex fears
Patti Waldmeir in Shanghai
China’s central bank governor downplayed concerns over the country’s falling foreign reserves and said he saw no basis for continuing depreciation in the renminbi — comments that could calm mainland markets when they reopen on Monday after a week-long hiatus that saw upheaval in global markets.
In an interview published over the weekend in Caixin, the mainland financial magazine, Zhou Xiaochuan, governor of the People’s Bank of China, chose a critical moment to speak up to clarify Beijing’s exchange rate strategy, local analysts said.
All eyes will be on mainland markets when they reopen on Monday, watching for dramatic fluctuations in response to a volatile week in world markets.
In the interview Mr Zhou dismissed speculation that Beijing would tighten capital controls. “It is normal for foreign reserves to rise and fall as long as the fundamentals face no problems,” he said. “At the moment the level of cross-border capital flows is within the normal region.” He added: “We need to differentiate between capital outflow and capital flight.”
Surging capital outflows from China have become a source of growing global concern and have left Beijing scrambling to support the currency. During January’s market turmoil in China about $113bn was sent out of the country in the first month of the year, according to estimates from the Institute for International Finance. Recently released data showed that foreign reserves fell to their lowest level in almost four years in January.
Mr Zhou stressed that Beijing’s strategy did not include further devaluations to boost exports. “The total trade surplus in 2015 was close to $600bn and net export’s contribution to GDP was not low so there’s no motive to depreciate the renminbi for the sake of net export expansion,” he told Caixin. He condemned “speculators” for targeting the renminbi, adding that “China will not let market sentiment be dominated by these speculative forces”.
Mr Zhou reiterated that “the trend is to rely further on the market to decide the level of the currency and to achieve a more flexible foreign exchange rate”. “The bank will use a basket of currencies as a reference and appropriately manage any daily volatility in the renminbi against the dollar as well as using a wider range of economic data,” he said, adding that there “is no basis for devaluation”.
Mr Zhou also defended the bank against accusations that Beijing lacked transparency in its management of the economy. “The central bank is neither a god nor a magician, there is no way that we can wipe out all uncertainties”. “Sometimes, the central bank has to say, ‘Sorry, we have to wait for new data’.”
Local analysts welcomed Mr Zhou’s decision to speak up, after several months of relative silence on currency policy. “Many have criticised China for a depreciating renminbi and a lack of transparency in communication,” said Shao Yu, chief economist at Orient Securities in Shanghai.
“Mr Zhou needed to clarify China’s foreign exchange policy and method of communication. Now his attitude to some issues is clear: the PBoC will be more communicative . . . and it will not return to the old and rigid methods of capital control,” he said. “This is relatively good news for the market”.
Wang Tao, chief China economist at UBS, said Mr Zhou’s comments were “likely to help calm expectations of a sharp depreciation of the renminbi. He clarified that China will take an opportunistic view of exchange rate reform: when there is a window of opportunity they will push forward, otherwise they can wait and be patient.”
In spite of worries worldwide about the strength of the Chinese economy, local consumers appeared upbeat during the recent lunar new year holiday, one of the biggest shopping seasons of the year.
During the week-long holiday, which ended on Saturday, retail sales rose 11.2 per cent compared with the same holiday period last year, with cinemas posting a sharp increases in box-office sales, according to Ministry of Commerce data.
Additional reporting by Jackie Cai
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