From: lessgovt@gmail.com   
      
   China’s Weakening Currency Is Becoming a Headache for Its Central Bank   
   By Weilun Soon, July 5, 2023, WSJ   
   China’s currency has weakened too far and too fast for its central bank.   
   The onshore yuan, also called the renminbi, has lost around 4.8% of its value   
   since the start of the year, according to FactSet. A dollar on Wednesday   
   bought 7.2432 yuan in mainland China, a rate that is heading toward a 15-year   
   low set last November.    
   The more freely traded offshore yuan was at 7.2542 per dollar, according to   
   FactSet.   
      
   The People’s Bank of China has started to respond, repeatedly setting a key   
   daily reference rate at levels that defy market expectations. Economists use   
   the yuan’s daily fixing as a gauge of how much the central bank is taking   
   action to influence the    
   yuan. A day earlier, the currency was fixed at 7.2046 against the dollar,   
   which analysts said was the biggest divergence this year from what markets   
   were expecting.   
      
   “The yuan’s weakness has gotten to a stage where they felt it’s overdone   
   and therefore they have started to step in to send a clear signal that they   
   are reining in the depreciation,” said Khoon Goh, ANZ’s head of Asia   
   research.   
      
   The central bank’s response to the yuan’s recent weakness shows the   
   delicate balancing act that will confront Pan Gongsheng, who is set to become   
   the next governor of the People’s Bank of China.   
      
   The onshore yuan weakened past 7.30 against the dollar in November 2022, and   
   the offshore yuan traded at its lowest-ever level then. The PBOC took a series   
   of steps to prop up the value of the currency, including making it more   
   expensive for companies in    
   China to borrow foreign currencies. It now faces the choice over how far to go   
   this time.     
      
   The PBOC has pledged to “resolutely guard against the risk of sharp   
   fluctuations in the exchange rate,” according to minutes of its   
   second-quarter policy meeting that were released last Friday. That phrase   
   didn’t appear in its minutes for the    
   previous quarterly meeting. The central bank didn’t respond to a request for   
   comment.    
      
   Last week, when the offshore yuan briefly weakened past 7.28 per dollar, an   
   article in a state-run newspaper overseen by the central bank said the   
   yuan’s exchange rate “has solid fundamental support” and should remain   
   at a stable level in the    
   second half of the year.    
      
   It also warned against currency speculation. “Do not bet on the appreciation   
   or depreciation of the renminbi. If you gamble for a long time, you will   
   lose,” the article said.     
      
   China’s economic recovery is losing steam, with recent data on   
   manufacturing, new home sales and employment all showing how difficult it is   
   for the economy to bounce back from a long and painful series of restrictions   
   to fight Covid-19. China’s    
   exports in May were down 7.5% from a year earlier, despite the fact that in   
   May 2022 the country was still in the midst of its strict zero-Covid policies.   
      
   The PBOC surprised the markets last month by cutting interest rates, which   
   economists at Standard Chartered said was “a clear signal of easing intended   
   to prevent negative sentiment feeding on itself.”    
      
   But the cut further increased the difference in interest rates between China   
   and the U.S., which has been one of the big drivers of yuan weakness over the   
   past year.    
      
   The Federal Reserve took a pause last month after 10 consecutive interest-rate   
   increases. Although Fed officials have indicated they are likely to lift rates   
   further, most economists think they are near the end of the raising cycle.   
   That will help    
   stabilize the yuan later this year, according to analysts and economists.   
      
   The yuan’s weakness has been exacerbated recently by foreign investors   
   pulling money from mainland China’s stock market. More Chinese exporters are   
   also choosing to hold on to U.S. dollars and other foreign currencies rather   
   than convert them into    
   yuan, removing one source of support for the currency.   
      
   Unlike many Western central banks, the PBOC has a wide brief, being tasked   
   with managing inflation, keeping the currency stable and managing risks in the   
   financial system. It has secondary aims of boosting economic growth and   
   employment.   
      
   These goals aren’t always compatible. An obvious solution to weak exports is   
   a weaker currency, which would make Chinese goods cheaper for the rest of the   
   world. But the central bank’s desire to keep the yuan stable makes that   
   difficult.   
      
   Chinese central bankers’ reluctance to let the currency weaken further is   
   partly because they worry about a wider fallout, including the impact on   
   property prices, the stock market and even questions about the Hong Kong   
   dollar peg, said Ligang Liu,    
   head of Asia-Pacific economic analysis at Citi Global Wealth Investments. Hong   
   Kong’s currency is allowed to trade in a range against the dollar, although   
   the permitted levels remain close to the yuan’s value against the dollar.   
      
   The central bank monitors the performance of the yuan against a basket of   
   currencies, including those of some of China’s largest trading partners in   
   Asia. A sudden depreciation would hurt its trade relations with those   
   countries and drag regional    
   currencies lower, said Sim Moh Siong, currency strategist at Bank of   
   Singapore. “That may then feed back into China and the overall perception of   
   Chinese markets,” he said.   
      
   The fate of China’s economy may be largely out of the PBOC’s hands in any   
   case, according to economists.   
      
   “If we look at the root cause of the weakness of the economy, it’s not the   
   lack of liquidity, it’s not about the affordability of the credit, it’s   
   not about the availability of credit—it’s just a lack of confidence,”   
   said Shuang Ding, a    
   senior China economist at Standard Chartered.   
      
   https://www.wsj.com/articles/chinas-weakening-currency-is-becomi   
   g-a-headache-for-its-central-bank-372ec31d   
      
   ===============   
      
   China’s Brain Drain Threatens Its Future   
   By Nathaniel Taplin, July 5, 2023, WSJ   
   Is China reopening to the world or turning inward again?   
      
   Many would argue the latter, but in one important way, the country is still   
   going global: Residents appear to be leaving at a faster clip than they have   
   in years, including a significant number of the wealthy and well-educated the   
   nation needs to keep    
   modernizing and investing.   
      
      
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