China’s economic situation is changing, downward pressure is increasing, and the government needs to take timely steps to counter this, according to a statement from a Politburo meeting Wednesday chaired by President Xi Jinping.
Theoretically it looks complicated, but in simple terms it’s all very simple: the communist government is running out of money – no cash to spend!
The economic situation is changing, how? Because of the trade war with the US, exports have dropped and continue to drop further. With not that much income to pay for public security and other expenses, or just to keep the government running, the CCP will be in deep trouble.
When exports slow, more factories will close down and more people will become unemployed. With weakening production and construction, the stock markets will definitely go downwards.
The main Shanghai stock index has plunged more than 25% since its peak in January, as we have seen.
That’s why we see Xinhua report on the Politburo meeting saying “China’s leadership signals that further stimulus measures are being planned, as disappointing economic data show that the current piecemeal approach isn’t working.”
When the economy is doing badly, its poor performance will be reflected in the weakening of its currency – RMB or yuan.
CNN Money’report yesterday, “The currency has now slumped more than 9% against the dollar since January, coming under pressure from the US Federal Reserve’s moves to hike interest rates and fears about China’s slowing economy,” looks easier to understand.
But one thing leads to the other, and all major factors are closely related. “The weakening yuan is having a ‘destabilizing’ effect on the country’s stock market. One reason is that Chinese companies have large debts in dollars that become harder to pay back as the yuan falls.”
As the U.S. dollar hits highs for the year, the People’s Bank of China (PBOC) seems determined to hold the value of the yuan at seven to one, or stronger. This barrier holds little technical significance, but its psychological value and the central bank’s interest in holding the line are enormous, according to Bloomberg on Monday.
Most major currencies like the U.S. dollar, euro and Japanese yen are free floating, meaning markets set their exchange rates minute by minute. Others, like the Hong Kong dollar, are pegged closely in value to another currency.
Mainland China used a system like Hong Kong’s until 2005, but today the yuan is somewhere in between. Authorities fix a daily midpoint—based partly on the previous close—and let the yuan trade as much as 2 percentage points above or below this level, intervening to buy and sell the yuan if it rises or falls too far.
In mid-October, the US refrained from formally naming China a currency manipulator, but it has accused the country over the years of keeping the yuan, artificially low to make its exports more competitive.
As a matter of fact, the communist government of China is a currency manipulator. But economists would rather say these words, “While it’s difficult to confirm, there’s strong evidence that the PBOC is managing prices in the foreign-exchange market.”
What the CCP officials do would be out of everyone’s expectations, as most Chinese have fully understood with a hundred years of experience, even without bottom line of humanity, not to mention “currency manipulation”.
China owns around $3 trillion in foreign-exchange reserves, a key tool for currency management or manipulation. If the yuan is too weak, the CCP can sell U.S. Treasurys or other assets and use the received dollars to buy the Chinese currency, which it has already done to some extent, to support its value of RMB.
In recent weeks we have seen world investors betting against the Hong Kong dollar, as a trial step to target the yuan. And China was quick to respond, warning speculators betting against its currency to prepare for a fight. “As traders push the renminbi lower, they’ve met stiff resistance from the PBOC, “ Bloomberg has reported.
Some say authorities in Beijing may have no choice but to let the yuan weaken further. And if that happens, growth in China could slow even further, threatening the country’s political and economic stability, thus challenging the legitimacy of the CCP in power. And that’s something China’s government wants to avoid at all costs.
Analysts have said that “Instead of straining to keep the currency above seven, the central bank should be signaling that it wants market mechanics to work.” But that’s not what the CCP works with its own mechanics.
Miles Kwok said recently in an interview with noted financier Kyle Bass, “More than 45% of the bank loans are bad. They make a fake economy. This is the printer of the currency. You (foreign investors) cannot move your earned money outside of the country.”
Who has the most cash in the country of China? No doubt, in the pockets of the top CCP leaders and their families. But most of their cash has been earned by corruption and hidden somewhere in the US or Swiss banks, if not others. They won’t be used for the construction of the socialist modernization, or benefits of the Chinese people.
When the Chinese government does not have the money to spend, what will the CCP officials do? – Cut leeks! The Chinese stock market is a casino; the real estate market is a casino; the P2P Ponzis is another casino … education, social security, medical reform ….all Ponzi-scheme like operations, to rip the ordinary people of their hard-earned cash!
One example of ‘cutting leeks’, the Chinese government recently cracks down on foreign currency transfers for overseas property deals.
The State Administration of Foreign Exchange earlier October published a list of 20 irregularities, which included four related to property deals, in a move designed to send a warning to investors it said were trying to get money out of the country through networks of “underground banks” or illegally pooling individual currency.
It is believed the number of individuals fined in the published cases is only a fraction of the thousands of people finding a way to skirt China’s $US50,000 ($70,000) foreign exchange quota, which is a limit on the amount of local currency an individual can send overseas each year (a ridiculous policy in itself).
The message is clear: The government regulation on foreign currency is becoming more thorough; they are extending supervision from corporates to individuals.
Nowadays, more Chinese have Wechat and Alipay accounts linked to their bank accounts, and every shopping they do, where, how much, and what for, is monitored by the government.
In China, most of the everyday people are quite simple. Consequently, systems designed to be used by them are simple too.
Elsewhere in the world, security is a much bigger concern, especially if it is related to financial matters. But in China, ordinary people are not very suspecting of surroundings. With Wechat or Alipay, security is comparatively elementary. That’s why they work, especially for Chinese people.
But it is already a life fact that the CCP already has its hands in everyone’s wallet; if it wants to do anything to manipulate, everything could be just easy-catch.
By Cloudy Seagail