China: Bracing for a Q4 Deceleration in Trade

Published on October 24, 2019

At a State Council executive meeting held on Wednesday morning, local time, in Zhongnanhai, we understand that Premier Li Keqiang expressed concerns that China’s foreign trade is likely to experience negative growth in Q4 of this year, particularly in exports.

Li, according to Chinese sources, then went on to urge local government and related authorities to intensify efforts to keep foreign trade and investment stable.

*** Specifically, Premier Li is said to have called on government authorities at all levels to encourage enterprises through export tax rebates, trade financing, credit insurance, and other measures that are hoped might ensure even a small uptick in imports and exports for Q4. ***

*** There was, however, no (explicit) discussion of the role of the currency as a tool for trade – perhaps not surprising given the sensitivity of ongoing trade negotiations with the White House. Rather, Li repeated the mantra of the need to “ensure the relative stability of the Renminbi rate and FX reserves,” and of the desire to further open-up the currency to markets in order to keep foreign trade and investment stable. ***

*** Since the beginning of the year, Li noted, the RMB exchange rate has “performed well” overall, and FX reserves have also maintained a steady growth rate. Furthermore, it is still expected that the RMB will appreciate against the US Dollar – in the medium and long term. ***

*** But pointedly, in the short term, officials insist it will be up to “market forces” to determine whether the RMB appreciates or depreciates against the dollar. With a still weakening trade sector, that directionality may not be so hard to imagine, and unless the currency comes under severe speculative attack, the People’s Bank of China will continue to refrain from active currency intervention. ***

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