2010-09-30

Andy Xie says yuan is overvalued

In an article about China's problems with the real estate sector, Andy Xie says an undervalued currency is not one of China's problems. In fact, the renminbi may be overvalued.

泡沫破后中国部分房价会跌去九成
中国有很多问题。但低估汇率不是问题。我反而认为人民币可能被高估了。存在升值压力是因为市场猜测美国可能会对中国采取何种措施。近十年内,中国的货币供应量增加了4.5倍。在经过长时间和大规模的货币扩张之后,从来没有任何经济体的货币会不贬值。如果人民币升值预期逆转,资本会巨额外流。这才是对中国的考验,而不是今天的升值压力。
China has many problems, but an undervalued exchange rate isn’t one of them: The renminbi may even be overvalued. The pressure to appreciate comes from market speculation about what the U.S. may do to China. China’s money supply has increased four and half times in a decade. I don’t recall any economy that, after such prolonged and massive monetary expansion, didn’t suffer devaluation. When we see a reverse in the expectation that the renminbi will appreciate, the capital outflow could be massive. That will be China’s true test — not today’s pressure to appreciate.

English link.

The English link translates some of the Chinese, but it is mostly about currency, where as the Chinese article is about globalization and a real estate bubble. Here Andy Xie has the trend right, but since he's not looking at social mood, his timing may be a bit optimistic. Below is the sloppy Google translation along with the Chinese:
While the trade war is unlikely now, the next few years, Sino-US trade frictions may increase. A commodity-specific protective measures will proliferate. Chinese enterprises will become increasingly difficult for independent development in the United States sell their products. In essence, the Sino-US trade will become increasingly concentrated in the United States multinationals. Obviously, this is not good news for Chinese companies because these companies eager to establish their own brand, or establish their own distribution channels in the United States. China might react to restrict U.S. multinationals in China business. Although the bilateral trade will continue to develop, but growth will slow sharply. I suspect that in the next decade, the pace of development of bilateral trade may be less than half of the past.

  Sino-US trade friction signs that global trade will slow down. This may be a good thing. Over the past 20 years, as multinational companies will shift production to developing countries, global trade growth rate is the world's economic growth rate of 2 times. Most of the production have been completed to transfer the transfer. The remaining production is difficult due to the transfer of political interference. Future global trade in goods may be synchronized with the global economic growth.

  For a long time, globalization has both the developed and developing countries is a win-win. But we have no such feeling. Developed over the years to enjoy cheap goods, since the unemployment, the income of the developed countries face the problem of suffering. Developed countries, the future looks worse.

虽然眼下不太可能出现贸易战,未来几年,中美贸易摩擦可能加剧。专门针对某种商品的保护措施会激增。中国企业会越来越难以在美国销售它们自主开发的产品。从本质上讲,中美贸易会越来越集中在美国跨国公司中。显然,这对中国公司来说不是好消息,因为这些公司渴望树立自己的品牌,或者建立它们自己在美国的分销渠道。中国可能会作出反应,限制美国跨国公司在中国的业务。虽然两国贸易将继续发展,但是,增长率将大幅度减缓。我怀疑,在未来十年内,双边贸易发展的速度可能还不及过去的一半。

  中美贸易摩擦的迹象表明,全球贸易将会放缓。这可能是好事。过去20年来,由于跨国公司将生产转移到发展中国家,全球贸易增长速度是全球经济增长速度的2倍。大部分可以转移的生产都已完成转移。其余的生产由于受政治干扰而难以转移。未来全球货物贸易可能与全球经济同步增长。

  长期以来,全球化无论对发达国家,还是发展中国家都是共赢的。但现在已经没有这种感觉了。发达国家多年来享受廉价商品,现在由于失业,发达国家面临痛苦的收入问题。发达国家的未来看起来更糟。
With regards to real estate, Xie sees a collapse in real estate prices, by as much as 70-90%. China will have to raise interest rates soon, he says, but if property prices decline, the hot money will flow out of the property sector. Although Xie doesn't represent the thinking of the Chinese government and regulators (though there are some similarities), he does offer a China-centric view of the Chinese economy. The U.S. press, including Nobel Prize winning economist Paul Krugman, tend to look at China as if it was just a manufacturing hub.

Also interesting is how all this plays into the views of Liu Jun Luo and Song Hongbing, of the U.S. using its currency (along with other tools) to retain its position as the number one economy. Liu has predicted that the renminbi could collapse, along with all the other currencies of the world, to as low as 20 to $1.

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