With Yuan Approaching 6 to 1 Dollar, Factories Leave for Vietnam

China missed it's window of "cost free" reform from 2005 to 2008, when party insiders shut down the reform agenda. The Ministry of Finance took power away from the reform minded PBOC and when 2008 hit, the response was a lending spree that directly benefited insiders who control state owned companies. The result is China is now trapped between Scylla and Charybdis: the situation is at an extreme where choosing a new path entails great cost. Reform in 2008 would have been costly as well, but a recession then could have been blamed on global conditions. Had they accelerated currency appreciation before 2008 and caused more pain in the short-run, they would have been better positioned in 2008 because the bubble in real estate would have been much smaller. Now, if they tighten credit and the currency rises, the risk of a major slowdown is great. If they instead follow the developed world and weaken the currency, they risk high inflation.

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Chinese article, Google Translated:
RMB exchange rate approaching 6.0 Enterprise, said the plant can only be moved to Vietnam jumped to
RMB exchange rate approach "6.0" manufacturing "labor pains" difficult to stop

"If the yuan to rise, I can only go to the factory moved to Vietnam. "

RMB against the U.S. dollar exchange rate has been close to 6.0 mark, and failed to reverse the appreciation trend. However, faced with the national foreign reserves hit new high of Downcast and Chinese manufacturing industry resisted calls for renewed appreciation of the renminbi.

January 13, the central parity of RMB against the U.S. dollar surged 58 basis points to 6.0950, a record high, at the same time, the spot exchange rate broke through 6.05 mark, closing at 6.0434 highs. Although the upward trend in the next two days has been suppressed, but some analysts believe the yuan continues to rise this year, has become a high probability event, but the pace of increase may be slowing.

2013 yuan hit a new high of 41, the central parity against the U.S. dollar has risen by nearly 3%. China and even to some extent, played a role as an international safe haven, when the rapid withdrawal of international capital from the emerging markets, not all returned to the U.S., but hoarding in Hong Kong Or go directly to mainland China.

2013 as a whole, the only BRICS strong performance of real effective exchange rate appreciation, the other four countries have different degrees down.

RMB "thriving"

January 16, the latest data released by the Bank for International Settlements show that in 2013 the annual increase of RMB real effective exchange rate of 7.89 percent, the nominal effective exchange rate of increase of 7.18%. 2013 People's Bank of China announced central parity of RMB against the U.S. dollar cumulative increase of 3.09%, current cumulative increase of more than 2.91 percent.

It is understood that the RMB real effective exchange rate is the trade-weighted index, the greater the influence of exchange rate movements of major trading partners. In BRICS, the real effective exchange rate appreciated sharply only China, India and South Africa, rates dropped by a big margin.

RMB exchange rate in the first quarter of 2013 experienced a non-volatile direction, when the central bank governor Zhou Xiaochuan re-election, with the foreign media, "RMB internationalization will accelerate" as a comment. Sure enough, from the beginning of April RMB skyrocketing, rising first followed by another four-seven rising, 1 April to 31 May 40 trading days, the RMB exchange rate reform 17 times hit a new high.

Correspondingly large inflows of hot money, financial institutions, foreign exchange soared, according to a rough estimate of the residual method, 2013 to April 1 arbitrage funds into the country the size of more than 700 billion yuan. The face of surging hot money, SAFE issued in early May "on the strengthening of foreign exchange inflows management issues related to notice", aimed at addressing the country's capital inflows through trade channels situation. Strengthen supervision, the external environment continues to deteriorate, while the market expected the Fed may begin after September exiting QE, RMB appreciation is expected to weaken.

Conditions in June and July hot money inflows inhibited financial institutions increased sharply the amount of foreign exchange, or even a reduction in the situation. Zhou Xiaochuan at the annual meeting of the International Monetary Conference 2013 statement, China will not come to the country to improve their competitiveness through currency devaluation competitive, this story had expressed dispel market concerns about China joined the ranks of pursuing a weak currency.

After July, the center launched a steady growth, and China's economic outlook showed a good situation, and in September the Fed has not scheduled exit QE, 10 month our country's new foreign exchange renewed surge of financial institutions, hedge funds continued influx of RMB October and early December again speed up.

Face of 2014, Zhou Xiaochuan, eighteen of the reporting period in the interpretation put forward in a timely manner to reduce the foreign exchange market intervention in normal type, making exchange rate fluctuations reflect the real needs of the market, regulators hope to increase the yuan shows the volatility.

Fudan January 13 release of "2013 Index of Fudan RMB exchange rate," said the beginning of 2014 will be a favorable opportunity to promote RMB exchange rate of the first stage of reform, suggested that the relevant authorities to seize the favorable opportunity to reform the RMB exchange rate formation mechanism appropriate relaxation volatility limits.

The report concluded that, under strong U.S. economic recovery, reduce the size of the background of QE, the dollar may recover strength, the RMB against the U.S. dollar this year, there may be a slight devaluation.

From the beginning of January this year, the United States began to reduce the size of the monthly purchase $ 10 billion debt, began gently introduced quantitative easing, the Fed will not raise interest rates repeatedly said recently. But "if the next two meetings of the Federal Reserve continued to buy the current pace of reduction can be expected in the first half 2014, the yen , Asia-Pacific and emerging currencies will be gradually subjected to greater selling pressure. "first vice president of Fubon Bank (Hong Kong) and investment strategy and research director Pan Guoguang said, could once again become a safe-haven during the renminbi in Hong Kong, which is the first half of the external pressure of RMB appreciation as it thinks.

But some analysts believe that the U.S. QE may completely withdraw before the end of 2014, the Fed rate hike is expected in 2015. Market trends will change, the dollar will regain strength in emerging markets, including hedge funds flowing into China will return to the U.S., which will also lead to downward pressure on the RMB against the U.S. dollar.

In the eyes of some economic analysts, as long as enough power to keep the domestic economy, the RMB appreciation trend will still remain. Jun Ma, chief China economist at Deutsche Bank believes that the U.S. and European economic growth this year will be significantly higher than last year, the recovery of external demand will significantly enhance China's export growth. Its expected appreciation of the RMB this year or 2%.

Chinese manufacturing difficulties encountered

Data from the General Administration of Customs show that last year China's foreign trade in Europe and America is still vulnerable to which the EU trade increased by 2.1%, the Japanese trade fell 5.1 percent, the U.S. recorded a 7.5% increase. Overall, China import and export value in 2013 was 25.83 trillion yuan, net of exchange rates, an increase of 7.6%, down from 8% at the beginning of the development goals for two consecutive years have not completed the goal. However, considering the continuous appreciation of the renminbi, under the background of shrinking demand in foreign markets last year, still recorded a trade surplus of 1.61 trillion yuan, an increase of 12.8%, also considered essential to complete the task.

"I think this data is somewhat water." Engaged in import and export trade in Dongguan businessman Wang (a pseudonym), said Wang as early as the 1990s, factories in the Pearl River Delta, engaged in the business of textile export trade. Due to rising costs and shrinking orders in recent years, which has already shut down the plant in the country, but its import and export trade volume reached 100 million yuan last year, remains. "Not afraid to tell you, before I was engaged in the import and export of goods, capital and export is now the main." According to him, this way is through false trade flows of funds.

Frequent cases of large-scale domestic trade make false entry of hot money, the first three months of 2013, exports from the Mainland "IC" number grew nearly 7 percent, but exports jumped nearly three times the amount of an. Meanwhile Statistics "precious metals" a situation also shows the soaring price of such an unreasonable price soaring, so that regulators realized that the presence of a false trade, thus beginning to strengthen supervision in May.

According to industry sources, most similar trade staging in Hong Kong, and import and export data last year, the contribution to the overall bilateral trade between Hong Kong and the maximum data growth, an increase of 17.5%.

Although the trade surplus is still expanding, but the ability to attract foreign investment in China seems to diminish. Commerce Department data show that in the first 11 months of last year China Manufacturing actual use of foreign investment 41.458 billion U.S. dollars, down 5.71%; while approaching the lower cost of production areas such as Vietnam, in 2013 foreign investment grew by 54%, most of which are concentrated in the manufacturing and processing industries. While appreciation of the renminbi, in 2013 most of the general decline in emerging market currencies, such as the rupiah against the U.S. dollar fell to five-year low, constant outlet pressure buildup in China.

"If the yuan to rise, I can only go to the factory moved to Vietnam." Zhongshan vigorous shoe chairman Liu Changning said that the RMB appreciation and the sharp rise in wages, so刘长宁export business is getting harder and harder .

"I also understand that the government wants us transition to domestic consumers." He said, had around 2009 channels and set about establishing the brand in the country, to now we have not yet succeeded. He had designed in accordance with the strategic planning, design and future domestic market, leaving only the marketing department, the manufacturer then moved to Vietnam and other Southeast Asian countries.

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