China: RMB, and Next Week’s Economic Data

Published on October 14, 2020

The Chinese Yuan sold off by around 0.75% against the US Dollar on Monday on the announcement that the People’s Bank of China would eliminate a 20% reserve requirement — a penalty in effect — to short the currency. That pop in the USD/CNY rate in the face of a powerful weakening dollar trend was, however, short-lived.

A senior Chinese monetary policy source commented on the PBoC move as follows, on background:

The Renminbi posted its biggest gain in 12 years in Q3. We do hope the move will curb the rapid rise of the RMB at least in the short term. We have attributed the RMB’s recent attractiveness to multiple factors, including the country’s faster than expected economic rebound, the recent monetary loosening by the US Federal Reserve, unsuccessful pandemic control in western countries, risk aversion in the global markets, and other [factors]. Obviously, the RMB is drawing attention as a safe haven from global currency volatility.

Separately, a senior former financial policymaker offered this perspective on the move and its potential impact, also on background — with a caveat that they are his personal opinions and not official policy:

[The] RMB is a good option as China’s current economy offers the prospect for a solid, healthy rebound. Based on such a strong economic rebound trend, [the] RMB could keep rising for the months to come. The RMB could continue appreciating for another year, as economic sectors like consumption, infrastructure investment and high-tech innovations continue to jump. The RMB could surge to 6.5 against the USD next year, although uncertainties remain [around] the changing US political situation and China-US relations.

Monday Beijing Data Release

As to the state of China’s economic rebound, the National Bureau of Statistics is scheduled to release national account data for September, Q3, and the first three quarters of the year and to hold a press conference to review China’s economic performance on Monday, October 19, at 10 a.m. Beijing time (Sunday, October 18 for the US).

In advance of that, as per the usual procedure, nine economic departments submitted their economic analysis reports for the third quarter of this year to the Central Financial and Economic Affairs Commission (CFEAC) and to the State Council on Friday, October 9.

From what we understand, all nine departments calculated China’s GDP to have grown by more than 5.0% year on year in Q3, and over 0.5% year on year for the first nine months of 2020. More to the point, six of the nine departments pegged that growth rate at between 5.6-5.9%, citing a pick-up in investment, exports, and consumption, and all expected momentum to carry forward to Q4 of 2020 and into 2021.

And expectations from sources in the NDRC (National Development and Reform Commission), the first among equals, for the other data points are as follows:

The value-added industrial output is expected to increase by 5.8% year on year in September, extending the rebound, and up from a growth rate of 5.6% in August and 4.8% in July. Industrial output should expand 1.0% from a year earlier over the first nine months, compared with an increase of 0.4% over the first eight months of the year.

Fixed asset investment (excluding rural households) should increase by 0.8% year on year for the first nine months, marking the first investment gains for the year. China’s FAI had edged down 0.3% year on year over the January to August period, albeit an improvement from the 1.6% decline that had been registered over the first seven months of the year.

Retail sales of consumer goods should increase by around 2.3% year on year in September, up from a year on year growth rate of 0.5% for August, and from a contraction of 1.1% in July. That rebound is being led by a continued recovery in catering demand and solid goods sales. For the first nine months of the year, retail sales should register a negative growth rate of 7.4% year on year, a narrowing of the 8.6% drop registered for the first eight months of the year.

Finally, we would be remiss not to stress that these numbers are best estimates from a snapshot of policymakers and should in no way be construed as a preview of any official data release.

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