Industrial Bank Chief Economist Declares Yuan Overvalued

Chinese economists have found the source of China's economic problems: the overvalued yuan.

Industrial Bank (not to be confused with ICBC) chief econoimst Lu Zhengwei says the yuan's high value is the cause of China's economic malaise.
The reason is China's economic downturn causing a clear understanding of the underlying causes, not the policy departments attach great importance to the "financing expensive", but the real effective exchange rate overvalued caused the "hollowing out of industry", resulting first two industries in the enterprise, regardless of size, generally hard to survive.

We propose to continue to promote the RMB exchange rate market-oriented reforms, amended RMB exchange rate overvalued. Otherwise, in the capital continued open-door policy launched in the background, according to the current exchange rate stability maintenance mode for a long time, will allow China to bear, "Asian financial crisis" great risk of a repeat.
Lu sees GDP growth falling below 7% in Q3, but the turning point being reached in the current quarter, with growth rebounding above 7% in Q4 and the 7% target being hit for the full year.
The face of these pessimistic expectations, our analysis shows that: declining trend of China's economy has been stopped, although the third quarter will be below 7 percent, but the fourth quarter is expected to account for 7 percent on the year is expected to achieve 7% It targets.

First, the consumer has been basically stabilized. According to data provided by Exhibit 3, either from the nominal growth rate or from the actual growth rate, the total retail sales of social consumer goods were to appear after falling in April this year to stabilize, then rise steadily. Among them, the August month retail sales growth rebounded to 10.8%, reaching the highest level of the year, which also led to a rebound in growth YoY. Month for two consecutive months the actual growth rate is also stable at the level of 10.4%.
Here is the exhibit:
I can see the trend slowing and perhaps leveling out, but the small bounce seen this summer is not larger than any of the other bounces in prior years. The next chart shows the stabilization in fixed income investment.
Growth is slowing in part because governments have no money. Here is the cumulative balance in government finances:
Also, financing costs aren't hurting growth. Here's the example from the coal industry. The blue column is borrowing costs for the industry. The first red column is other expenses.
As the report says:
Exhibit 8 provides to the coal industry as an example of financial analysis conducted clearly shows this: in the four samples examined period, operating profit and gross margin compared to the lowest and highest, fell by more than half; however, its overall borrowing rates highest and lowest even're just 15bp, with the highest and lowest interest debt ratios there was only 9 percent, just enough to make this a combination of both absolute operating profit and gross margin decreased by half; further observation showed that coal Total turnover lowest and highest during the period compared to the industry, dropped by half, which reflected excess supply, product sales difficulties are the result key coal corporate profits fell sharply. This is consistent with the situation we feel in reality: There are many companies, even if they borrow at zero-interest, it cannot be guaranteed they will repay the principal.

In conclusion, the bank sees the overvalued yuan as crushing manufacturing, blaming government focus on the virtual and financial economy as leaving the industrial sector behind.
This clearly shows the current core issue of China's economy, in fact, all of the real effective exchange rate overvalued currency economies will appear "industrial hollowing out" phenomenon, but also policy authorities since 2012 on the puzzling "off real to the virtual "," does not support the real causes of the financial entity "and other issues.
I don't see how China does a controlled devaluation of the yuan, but the support/pressure to devalue will rise if more economists follow in Mr. Lu's footsteps.

iFeng: 中国经济转折前夜:当前核心问题真正根源终于找到了

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