China
US institutions will keep Trump’s currency war at bay, but for how long?
Author: Adam Triggs, ANU
‘China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices’ tweeted the President of the United States. ‘Not anymore!’ Mr Trump’s assertions on currencies range from overblown to completely baseless. But this has not stopped his actions likely to endanger the US and global economies.
US authorities labelled China a currency manipulator on 5 August 2019 for the first time in 25 years after the RMB fell below the 7 RMB-per-dollar level. This was despite China’s actions failing to satisfy the US Treasury’s own definition of a currency manipulator. While US institutions may keep President Trump in check in the near term, this represents a dangerous escalation in tensions and a serious challenge to financial markets, US institutions and the rules-based system.
An undervalued exchange rate makes a country’s exports cheaper than they otherwise would be compared to those of other countries. Economists measure whether an exchange rate is undervalued by calculating what an exchange rate ought to be based on the characteristics of that economy, how much it trades with the world, how much it invests overseas and how much other countries invest in it. If an exchange rate is below what these fundamentals imply it ought to be, it is possible (though not conclusive) that the country is depreciating its exchange rate to achieve a competitive advantage.
This has not been the case for China. The IMF judges that China’s exchange rate in 2018 was broadly in-line with its fundamentals. This is not new. The IMF reached the same conclusion in its analyses of China’s currency for at least the last five years and, before that, found that China’s exchange rate was only marginally undervalued. US Treasury analysis comes to the same conclusions, supported by the fact that China’s current account surplus is almost non-existent: down from 10 per cent of GDP in 2007 to almost zero today.
Economists also assess whether a country is manipulating its exchange rate to achieve a competitive advantage by monitoring whether they persistently engage in one-sided interventions in foreign exchange markets. The US Treasury has never been able to demonstrate this for any major US trading partner, including China.
It is therefore perplexing why China has suddenly been labelled as a currency manipulator, a label which opens the door to sanctions and further trade restrictions. The trigger was that, for the first time in 10 years, China’s central bank has allowed the RMB to fall below the 7 RMB-per-dollar level. But the key word in this sentence is ‘allow’. A slowing Chinese economy, weakening exports due to US trade restrictions and an almost balanced current account means a weaker Chinese currency is to be expected. ‘They are not driving the currency down’ notes Marc Chandler, Chief Market Strategist at Bannockburn Global Forex ‘but just accepting market forces’.
Cornell University’s Eswar Prasad notes that China doesn’t even meet the US Treasury’s own definition of a currency manipulator. Mark Sobel, a 40-year US Treasury veteran, made a similar point. ‘It [China] has not been intervening’, he says. ‘By Treasury’s own foreign exchange-report criteria, China doesn’t even come close to meeting the terms for manipulation’. Labelling China as a currency manipulator, contrary to its own criteria, undermines the credibility of the US Treasury.
China is not alone. President Trump has regularly accused Europe and Japan of pushing down the value of their currencies to unfairly compete with the United States. It is true that the exchange rates of Germany, Japan, South Korea, Mexico and the euro area have been persistently undervalued in recent years. But even for these economies, the reality is more complex than what Trump suggests.
Germany’s exchange rate, for example, is undervalued by between 8 and 18 per cent. But this is primarily because it shares an exchange rate with the rest of the euro area. And although the common currency gives Germany an undervalued exchange rate, it gives France, Italy and a host of other euro area economies an overvalued exchange rate, netting-out most of the euro-wide impact.
US punishment of these economies for currency manipulation would rightly leave them feeling aggrieved and make the prospect of a currency war more likely. The costs would be substantial. Most economic models suggest that a currency war will distort trade and investment…
Business
Gordonstoun Severs Connections with Business Led by Individual Accused of Espionage for China
Gordonstoun school severed ties with Hampton Group over espionage allegations against chairman Yang Tengbo. He denies involvement and claims to be a victim of political tensions between the UK and China.
Allegations Lead to School’s Decision
Gordonstoun School in Moray has cut ties with Hampton Group International after serious allegations surfaced regarding its chairman, Yang Tengbo, who is accused of being a spy for the Chinese government. Known by the alias "H6," Mr. Tengbo was involved in a deal that aimed to establish five new schools in China affiliated with Gordonstoun. However, the recent allegations compelled the school to terminate their agreement.
Public Denial and Legal Action
In response to the spying claims, Mr. Tengbo publicly revealed his identity, asserting that he has committed no wrongdoing. A close associate of Prince Andrew and a former Gordonstoun student himself, Mr. Tengbo has strenuously denied the accusations, stating that he is a target of the escalating tensions between the UK and China. He has claimed that his mistreatment is politically motivated.
Immigration Challenges and Legal Responses
Yang Tengbo, also known as Chris Yang, has faced additional challenges regarding his immigration status in the UK. After losing an appeal against a ban enacted last year, he reiterated his innocence, condemning media speculation while emphasizing his commitment to clear his name. Gordonstoun, on its part, stated its inability to divulge further details due to legal constraints.
Source : Gordonstoun cuts ties with business chaired by man accused of spying for China
Business
China Dismantles Prominent Uyghur Business Landmark in Xinjiang – Shia Waves
The Chinese government demolished the Rebiya Kadeer Trade Center in Xinjiang, affecting Uyghur culture and commerce, prompting criticism from activists amid concerns over cultural erasure and human rights violations.
Demolition of a Cultural Landmark
The Chinese government recently demolished the Rebiya Kadeer Trade Center in Urumqi, Xinjiang, a vital hub for Uyghur culture and commerce, as reported by VOA. This center, once inhabited by more than 800 predominantly Uyghur-owned businesses, has been deserted since 2009. Authorities forcibly ordered local business owners to vacate the premises before proceeding with the demolition, which took place without any public notice.
Condemnation from Activists
Uyghur rights activists have condemned this demolition, perceiving it as part of China’s broader strategy to undermine Uyghur identity and heritage. The event has sparked heightened international concern regarding China’s policies in Xinjiang, which have been characterized by allegations of mass detentions and cultural suppression, prompting claims of crimes against humanity.
Rebiya Kadeer’s Response
Rebiya Kadeer, the center’s namesake and a notable Uyghur rights advocate, criticized the demolition as a deliberate attempt to erase her legacy. Kadeer, who has been living in exile in the U.S. since her release from imprisonment in 2005, continues to advocate for Uyghur rights. She has expressed that her family members have suffered persecution due to her activism, while the Chinese government has yet to comment on the legal ramifications of the demolition.
Source : China Demolishes Uyghur Business Landmark in Xinjiang – Shia Waves
China
China Expands Nationwide Private Pension Scheme After Two-Year Pilot Program
China’s private pension scheme, previously piloted in 36 cities, will roll out nationwide on December 15, 2024, enabling workers to open tax-deferred accounts. The initiative aims to enhance retirement savings, address aging population challenges, and stimulate financial sector growth.
After a two-year pilot program, China has officially expanded its private pension scheme nationwide. Starting December 15, 2024, workers covered by urban employee basic pension insurance or urban-rural resident basic pension insurance across the country can participate in this supplementary pension scheme. This nationwide rollout represents a significant milestone in China’s efforts to build a comprehensive pension system, addressing the challenges of a rapidly aging population.
On December 12, 2024, the Ministry of Human Resources and Social Security, together with four other departments including the Ministry of Finance, the State Taxation Administration, the Financial Regulatory Administration, and the China Securities Regulatory Commission, announced the nationwide implementation of China’s private pension scheme effective December 15, 2024. The initiative extends eligibility to all workers enrolled in urban employee basic pension insurance or urban-rural resident basic pension insurance.
A notable development is the expansion of tax incentives for private pensions, previously limited to pilot cities, to a national scale. Participants can now enjoy these benefits across China, with government agencies collaborating to ensure seamless implementation and to encourage broad participation through these enhanced incentives.
China first introduced its private pension scheme in November 2022 as a pilot program covering 36 cities and regions, including major hubs like Beijing, Shanghai, Guangzhou, Xi’an, and Chengdu. Under the program, individuals were allowed to open tax-deferred private pension accounts, contributing up to RMB 12,000 (approximately $1,654) annually to invest in a range of retirement products such as bank deposits, mutual funds, commercial pension insurance, and wealth management products.
Read more about China’s private pension pilot program launched two years ago: China Officially Launches New Private Pension Scheme – Who Can Take Part?
The nationwide implementation underscores the Chinese government’s commitment to addressing demographic challenges and promoting economic resilience. By providing tax advantages and expanding access, the scheme aims to incentivize long-term savings and foster greater participation in personal retirement planning.
The reform is expected to catalyze growth in China’s financial and insurance sectors while offering individuals a reliable mechanism to enhance their retirement security.
| This article was first published by China Briefing , which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, and India . Readers may write to info@dezshira.com for more support. |
Read the rest of the original article.
- Gordonstoun Severs Connections with Business Led by Individual Accused of Espionage for China
- China Dismantles Prominent Uyghur Business Landmark in Xinjiang – Shia Waves
- China Expands Nationwide Private Pension Scheme After Two-Year Pilot Program
- How a scandal over sanitary pads is shaping feminist activism in China
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