From June 2 to 3, the performance of offshore RMB was even more awesome, with an increase of nearly 900 points, the highest since May. So what happened?
Analysts believe that in addition to the acceleration of China's domestic resumption of work and production, another important reason is that on June 2 local time, the US Deputy Trade Representative Sarah Bianchi said that the Biden government was considering "all options" to assess possible changes in US tariffs on Chinese imports, including tariff reductions and new trade investigations, and shifted the focus to strategic issues with China. This may mean that the tariff reduction that has been talked about for a long time may really come.
Expected increase in tariff exemption
Recently, there has been constant news that the United States is expected to cancel or partially cancel tariffs on Chinese goods in the face of high inflation pressure and the US mid-term election is approaching. Once it is settled, it will undoubtedly be good for China's exports and is expected to ease market sentiment.
Last Thursday, driven by the Relevant Remarks on tariff exemption, China continued to release signals of stabilizing the economy. The growth of China's Internet Index kweb was close to 6%, and the RMB also continued to rebound. On the 2nd, the onshore RMB closed at 6.6600 against the US dollar, 258 basis points higher than the previous trading day. It rose 481 basis points in the week. The offshore RMB closed up at 6.6537 against the US dollar on the 3rd, with a cumulative sharp rise of 667 basis points in the week.
In April, the year-on-year growth rate of us CPI was 8.3%, which was the first month on month decline after 8 months, indicating that inflation peaked and fell, but the easing of inflation pressure was still less than expected, especially seeing that the oil price is now moving towards the $120 / barrel mark.
US President Biden recently said that he is considering canceling some tariffs imposed by former president trump on hundreds of billions of dollars worth of Chinese goods in 2018 and 2019. The Biden government is seeking ways to cool inflation. The industry has also called for tariff cuts to reduce the costs of enterprises and consumers. US Treasury Secretary Yellen believes that some tariffs hurt consumers and should be abolished.
Bianchi said in an interview with Reuters on the 2nd that he is seeking to solve the long-term challenges from China and obtain a truly meaningful tariff structure. We are looking at everything. Our focus is to ensure that we readjust our relationship with China again and pay attention to some concerns
Asked whether the tariff decision would lead to the abolition of some consumer goods tariffs and a new investigation into China's industrial subsidies and other practices, Bianchi said: "now everything is on the table."
She said that the USTR provided some relief for China's tariffs by excluding 352 expired specific products from the tariff of up to 25%. More than 140 members of Congress called for an expansion of the list.
The office of the United States trade representative is conducting a four-year statutory review of Section 301 tariffs that may last for months. The agency is collecting opinions from industry participants in two batches, with deadlines of July 5 and August 22.
On June 2, at a regular press conference held by the Chinese Ministry of Commerce, in response to a series of media questions about the US' recent consideration of abolishing the imposition of tariffs on China, Gao Feng, a spokesman, said that China's position on this issue is consistent. The abolition of the additional tariff on China is not only in the interests of Chinese and American enterprises, but also in the interests of the vast number of consumers in the United States and in the common interests of the world. China and the United States should walk in the opposite direction, create an atmosphere and conditions for bilateral economic and trade cooperation, and constantly enhance the well-being of the two peoples.
Obvious market warmth
Judging from the domestic situation in China, the situation is also moving in a good direction, and the most important one is the resumption of work and production.
On June 2, the Beijing municipal government issued a notice on the implementation plan of Beijing for coordinating epidemic prevention and control and stabilizing economic growth, actively, steadily and orderly promoting the resumption of work and production, adhering to the general policy of "dynamic zeroing", and implementing social prevention and control measures at different levels. Timely update and dynamically adjust the epidemic prevention and control guidelines by scene and category, and timely solve the practical difficulties caused by the epidemic prevention and control of enterprises that have returned to work and production, the return of supporting enterprises to work and production, logistics and transportation, and the return to Beijing. Guide more enterprises to formulate closed-loop production plans, optimize the production process with the minimum production unit, the minimum personnel grouping, partition, wrong time and wrong shift, and improve the ability of enterprises to resist the impact of the epidemic. The living quarters and construction areas of major projects shall be managed separately, and new employees shall live in independent areas to ensure that the construction progress is not delayed and the quality is not discounted.
According to the economic voice of China Central Radio and television, Tianxia Caijing, the resumption of work, production and market in Shanghai is being promoted. Since June 1, Shanghai has fully implemented the normalized management of epidemic prevention and control, enterprises have accelerated their production and operation, and relevant departments are also creating conditions for enterprises to return to work.
The reason why it is so important to resume work and production is that a large amount of funds have been hoarded among banks. Only after these funds are released can real credit relief be brought, and the most fundamental condition for credit relief is the resumption of work and production. The current expectation of the market is that the resumption of work and production will lead to a wider credit. Whether this expectation can be realized depends on the follow-up effect.
Multiple factors determine the sustainability of RMB rebound
In the current context of inflation and politics, tariff exemptions seem logical.
Many institutions believe that the elimination of tariffs will be beneficial to China's exports, and the RMB is expected to rebound in the short term. Morgan Stanley Huaxin Fund said that with the recent fall in US bond yields, the RMB exchange rate strengthened, and the external disturbance gradually eased. The market sentiment is also improving, and the response to positive information is more sensitive. The recent large net inflow of northward funds has also contributed to the upward movement of the market.
Previously, the market also continued to fluctuate due to the fear that the United States would launch an anti circumvention investigation against photovoltaic manufacturers in Southeast Asia. In the petition, American manufacturers said that Chinese manufacturers set up branches in Southeast Asia and build PV product production lines, and then export battery modules to the United States, so as to avoid being levied anti-dumping (AD) and countervailing (CVD) duties that must be levied on China's export of PV terminal products to the United States. But the agency's current concern about this issue is also declining.
Zhang Wei, senior analyst of Fullerton manufacturing, mentioned that there are about 200000 practitioners in the entire photovoltaic industry in the United States, 80%~90% of which are concentrated in the downstream, especially relying on China's silicon chips and components. Once the work is stopped, the employment problem will become prominent. At present, people from all walks of life believe that the situation may become clearer from July to August. In the worst case, a symbolic tax of 5%~15% or no tariff at all may be imposed.
However, the impact of the epidemic and the global recession on exports may still be more critical in the future. In addition to the potential impact of the containment measures on exports, overseas import demand may be peaking and falling. Nomura recently mentioned that at present, foreign consumption has shifted from durable goods to services, and the demand for durable goods has declined. At the same time, the fiscal stimulus of major economies weakened and new export orders to other regions decreased.
For example, personal protective equipment (PPE) and work at home (WFH) products have been the main driving factors for China's strong exports in the past two years, and the current momentum has begun to weaken. In terms of PPE related products, the year-on-year growth rates of textile yarn and fabric products (including masks) and medical devices (including respirators) were 0.9% and -10.2% respectively in April and 22.2% and 4.9% respectively in March.
In addition to tariffs, the manifestation of Sino US trade frictions also includes that the United States previously included a number of Chinese companies in the "entity list". In the medium and long term, most institutions believe that we still need to pay attention to the changes of geopolitical risks.
In addition, the process of interest rate hike by the Federal Reserve is far from over. The scale reduction was officially launched in June. Interest rates continued to rise by 50 basis points in June and July, and the appreciation trend of the US dollar remained unchanged. At present, Barclays, France Pakistan, Standard Chartered, Morgan Stanley and other major international banks have adjusted the annual target price of RMB against the US dollar to the range of 6.6~6.9, and the range shock is still the consensus expectation.
Source: import and export manager
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