Why China’s currency policy is inflexible

The main effect of a currency revaluation would be a shift of wealth from the Chinese government, the manufacturing sectors, infrastructure investment, and real-estate developers to Chinese households

According to US Treasury Secretary Timothy Geithner, China eventually will decide it needs to adopt a flexible currency exchange rate policy. Sorry, Mr Secretary, it won’t. It is not that adopting a flexible currency exchange rate is against China’s national interest. On the contrary, there are many benefits to China that would flow from revaluation.
 
China’s failure to adopt a flexible exchange rate is a political decision, not an economic one. While I agree that this is correct, I do not believe that it has much to do with Chinese leaders’ annoyance with international pressure or foreign relations. I believe that it represents something far more serious, the inability of a political system to change.
 
The revaluation of the renminbi is not something that should be looked at in isolation, but part of something much larger. China has pursued a policy that has been very successful helping the country achieve astounding rapid development. Although there are many elements, the basic concept has been growth based on investment over consumption and export over domestic consumption.
 
All government policies, all laws, all regulations distort economic behaviour. When the rules change, so does the game. Understanding exactly in what ways the distortions will affect economic behaviour is exceptionally difficult. In the United States in the early 1990s, the Congress passed a law to cap ever-rising executive salaries. This resulted in the creation of alternative forms of compensation like options. These were supposed to align management’s interests with those of shareholders. Often they had the reverse effect when management manipulated both earnings and options.
 
In emerging markets, the effect of policies, laws and regulations can have an even more disastrous effect. In Russia a rent-seeking bureaucracy utilises these mechanisms to invent new ways of extracting bribes and robbing businesses. Law and policy can function in two ways. It can limit the State or it can extend the power of the State. In Russia, the State bureaucracy is supreme. Since there is no mechanism to limit its power, there is no reason for rent-seeking bureaucrats to curb their plundering of wealth from natural resources or administrative interference in the market.
 
Market distortions create winners and losers. In the US, the rules regarding executive compensation became a spectacular windfall for the management in many companies. In Russia, the rules provide enormous benefits to the bureaucracy and government officials. The losers in the US have been shareholders. In Russia the losers are businesses, economic growth and most of the population. Obviously the winners have powerful economic incentives to maintain the present system.
 
China has a similar problem. A revaluation of the renminbi would hurt exporters—often State owned—and their employees. Their costs would go up and their revenues would go down. A Chinese exporter must pay for labour, utilities, rent, and any local inputs in renminbi. Most of Chinese exports are valued in dollars. So the value of anything that the exporter sells would go down relative to his costs. Another group that would lose from revaluation would be any company that has stockpiled goods or commodities priced in dollars. For example, Chinese State-owned companies at various times have stockpiled both copper and oil. If the renminbi were re-valued, the value of their stockpile would immediately decline.
 
In contrast, the winners in the Chinese economy would be just about anyone else. In a global economy, much of what we have or use comes from international trade. So although China is a huge exporter, it is also a huge importer. For example, all of the imported food, high-tech products, oil and many natural resources that China uses would immediately decrease in value.
 
The Chinese have stated that a cheap renminbi has allowed Western countries to have low inflation, low living cost, and a higher standard of living. But as Professor Michael Pettis of Peking University points out, a cheap renminbi “implicitly taxed Chinese household consumption to subsidise Chinese manufacturing and employment growth, it also implicitly taxed US manufacturers in order to subsidise US consumers. American consumers got cheaper (foreign) goods, American manufacturers had to compete against lower (foreign) prices.”
 
Professor Pettis goes on to state that the main effect of a revaluation would be a shift of wealth from the Chinese government, the manufacturing sectors, infrastructure investment, and real-estate developers to Chinese households. Exactly!!
 
The people with the power in China have done very well with the present set of rules and that is a large problem. They see no reason to change and so won’t. So don’t expect a major revaluation of the renminbi any time soon.
 
The recession has caused major disruptions in the economic fabric of world trade. The genius of market economies is that they can adapt to almost any change provided the rules can change too. The renminbi is a problem, but the policy and the inability to change it represents a greater problem for both China and the world.

(The writer, William Gamble, is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).
 

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COMMENTS

anshul rao

3 months ago

Sir lam ravikant my account home branch NANDGANJ ghazipur u. p branch code 12003 sir lam central government employee my posting Mumbai bank 2or3 bar application diya online banking keliye our new ATM keliye lekin nahi hua a/c transfer keliye request mail send Kar waya branch code 15972se us branch me koi kam nahi hota mai chahta hu ki mera a/c 15972 Kharghar Navi Mumbai Maharashtra transfer kiya jai taki mai online banking and ATM banwa saku thank u sir subh kariya keliye

same meena

5 months ago

Name -samay singh meena
Bank ifsc -SBIN001500804
BRANCH -MEDI
MANAGER NAME-PANKHILAL MEENA

Hello sir, m kareeb 6 mahine se kcc lene ke liye bank ke chakkar lga rha hu pr manager sir ye kh ke tal dete h ki abhi aur bhi files h, pr sir jo pese dete h unka aur apne pahchan balo ke liye kcc de dete h sir pleze solve my problem and take a valid action agganst bank manage plz sir.

Sunny Tanna

10 months ago

dear sir i am businessmen
sir my complaint is again sbi costumer service point
sir sbi costumer service point se kisi bhi other bank account me money transfer ho raha hai jo private software k dwara kiya ja raha hai
jisme sbi costumer service point ka sahara liya ja raha hai
kya ye legle hai?

REPLY

Sunny Tanna

In Reply to Sunny Tanna 10 months ago

this costumer service point address is shop 10 krishna complex join katargam sbi bank mini branch (sbi tiny) surat,gujrat 395004

Mohammad Ashiq

11 months ago

have loan account No 36886261468 at State Bank of India Wazirganj (Badaun). Myloan was sanction Rs 10 lakh for 15 years. I was withdrawal only Rs 5 lakh from bank. My EMI should be Rs 5 thousand and below per month but Bank SI is Rs 16000/- per month. I was go to bank for settlement my SI. Last month Rs 16000/ has been debit from my account and wholly month facing financial hardship. If this month same amount will be debit my account. I shall be taken following step from me:-
(a) I can changed my salary account.

(b) I can compliant chairman SBI Mumbai.

(b) I can go Banking Lokpal.

This massage will be authority any civil court case for against your bank

Santosh Jain

1 year ago

DEAR SIR,
I Mithalal p jain have gone through agrement with state bank of bikaner $ jaipur (sbbj) from last 7 years as i have given my property on rent to bank as i am receiving montly rent.since sbbj has been merge with state bank of india so i request you to make new agrement with me,and i am send photos of my property given on rent to bank there is lots of garbage around the bank from l may 2017 i am inimating manager along with senior sbi officer whose phone no is 9166918481, 0n 19 may 2017 i have send whats up photo to the said officer.but there is no action taken said officer and the bank maneger. I here by again senk the picks of surrounding.awating for your reply. my mobile 9833685651
Rep

surender verma

2 years ago

Dear sir and madam
I Surender Kumar My a/c no 30292348449 in rithala branch after 10 year this branch Services is very poor rithala branch and her atm not a proper warked mostly time not a service or atm not warked branch netwark is very very poor I submit amount 19100/= nineteen thousand one hundred counting ok but slip not collect reason netwark out of service I had Complaints branch manager say your money transfer within one week but not as my money 15 day
So plz. Purchase other net company or transfer the branch member
Thanking you
Surender Kumar
30292348449
Cont. 9599027618.9891887400

Gnana Kumar

2 years ago




Sir,
I am C.Gnanakumar, a Teacher , having account holder of the branch bearing SBI A/c No:30852281067 for the past 7 years after november salary,. I visited the branch on13/12/2016 for many times for manual withdrawal for my wife's medical expenses.I hailed others for money. I explained all my problems to him.But manager rejected all the times of my requests.(But he gave money to some other Lady employees in personal up to 20000 in the same week. Is it good?) i have not withdrawn even a rupee manually so far. As I am not satisfied with the service of the manager, Finally i requested manager to transfer my account to SBI, NAGARI, my native place, But even for this he refused my requests and asked for AADHAR card, i produced it and then immediately ask for RATION CARD .if I am an employee of AP government, how can I get RATION CARD? he says"without ration card it is not possible to transfer your account to other bank" . please take steps to transfer my account to nearby branch, i was totally struggled sir, i met all my medical expenses through card swipings only.
please do the needful and inquire in to this matter as early as possible. Otherwise I shall change my salary Account and other transactions to other bank.

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From: Gnana Kumar
Date: Fri, 6 Jan 2017 15:51:48 +0530
Message-ID:
Subject: Compliant Against SBI, PANNUR, CHITTOOR DIST, AP

Gnana Kumar

2 years ago




Sir,
I am C.Gnanakumar, a Teacher , having account holder of the branch bearing SBI A/c No:30852281067 for the past 7 years after november salary,. I visited the branch on13/12/2016 for many times for manual withdrawal for my wife's medical expenses.I hailed others for money. I explained all my problems to him.But manager rejected all the times of my requests.(But he gave money to some other Lady employees in personal up to 20000 in the same week. Is it good?) i have not withdrawn even a rupee manually so far. As I am not satisfied with the service of the manager, Finally i requested manager to transfer my account to SBI, NAGARI, my native place, But even for this he refused my requests and asked for AADHAR card, i produced it and then immediately ask for RATION CARD .if I am an employee of AP government, how can I get RATION CARD? he says"without ration card it is not possible to transfer your account to other bank" . please take steps to transfer my account to nearby branch, i was totally struggled sir, i met all my medical expenses through card swipings only.
please do the needful and inquire in to this matter as early as possible. Otherwise I shall change my salary Account and other transactions to other bank.

Delivery to the following recipient failed permanently:

[email protected]

Technical details of permanent failure:
Google tried to deliver your message, but it was rejected by the server for the recipient domain sbi.co.in by mx1.sbi.co.in. [202.58.102.108].

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From: Gnana Kumar
Date: Fri, 6 Jan 2017 15:51:48 +0530
Message-ID:
Subject: Compliant Against SBI, PANNUR, CHITTOOR DIST, AP

Gnana Kumar

2 years ago

complaint against SBI ,Pannur,
chittoor district, andhrapradesh.
Sir,
I am c.Gnanakumar, a Teacher , having account holder of the branch hearing SBI A/c No:30852281067 for the past 7 years after november salary,i visited the branch on13/12/2016 for many times for manual withdrawal for my wife medical expenses.I hailed others for money. I explained all my problems to him.But manager rejected all the times of my requests.(But he gave money to some other Lady employees in personal up to 20000.is it good) as I am not satisfied with the service of the manager, i have not withdrawn even a rupee manually so for.Finally i requested manager to transfer my account to SBI Bagai,my native place, But even for this he refused my requests and asked for AADHAR card, i produced it and then immediately ask for ration card .if I am an employee of AP government, how can I get ration card? he says"without ration card it is not possible to transfer your account to other bank . please take steps to transfer my account to nearby branch, i was totally struggled sir, i met all my medical expenses through swiping only
please do the needful and inquire in to this matter.

AJ

9 years ago

Good article.
Would have been easier on the uptake if the impact & counter measures from an Indian perspective were also added.

REPLY

Sureshjagannath Singh

In Reply to AJ 3 months ago

On ref to above matter I visited branch today also to know the status but branch officer of station road vile parle west not given proper answer
When I ask that as per RBI guidance in how many days local cheque clearance
Ticket No. 4726967494
my ac no.10227366306 Suresh Singh
i deposited a cheque of rs.50000 on 1/9/18 at Branch code 17415 Vile parle Mumbai but till date cheque not cleared in that time i visited branch two day i.e on 5th sep and 6th sep but they tell me that cheque in process on 3/9/18
sir.
please look this matter urgently and solve the issue
Thanking You

Commodities markets, ETFs and emerging economies

Global commodity assets under management have increased to about $235 billion by late 2009 compared with a mere $6 billion-$10 billion in 2000

Diversification is one of the main tenets of safe investing.

Since different asset classes are not supposed to correspond, diversifying your portfolio should allow you to hedge against losses in one category or profit from another.

According to two American finance professors, commodities over the period between 1959-2004 were not correlated with the stock market.

Commodities did well when stocks did not and commodities did poorly when stock markets were rising. Of course, during the recent market collapse, diversification didn’t help, because all asset classes including commodities and stock markets collapsed together. What happened? Two things: exchange traded funds (ETFs) and emerging markets.

Commodities markets all have a central problem, inflexibility of supply. In rising stock markets when demand is high, companies do not seem to have problems fulfilling the demand by issuing debt or stock. Governments can issue mountains of debt and investment banks can issue derivatives with a few key strokes.

This is not true of commodities. It can take years to drill a new well, develop a new mine or plant new fields. So with supply being inelastic, even small changes in demand can send the price soaring and detach it from underlying economic projections.

One of the most recent changes to the commodities markets has been ETFs. ETFs solve some major problems with commodities investing. Before ETFs you had two choices: options and commodities companies like an oil or mining company.

Each had problems. ETFs are not perfect, but they do offer good solutions to these problems. So the money flowed in. Global commodity assets under management increased to about $235 billion by late 2009 compared with a mere $6 billion-$10 billion in 2000.

Commodities markets used to be the province of a few professional players. These included commodities producers and consumers trying to hedge and a few sophisticated speculators. Now it is a huge casino made up of every type of investor.

The ETFs went from tracking the market to being the market. Gold ETFs own more of the metal than China. Two ETFs have accumulated more than 100,000 ounces each of platinum and palladium.

In a market of only about 6 million ounces, a 100,000-ounce swing is big enough to result in large price swings. So speculative frenzies driven by cognitive biases can easily overwhelm economic realities.

The other change in the commodities sector has been emerging markets. It is not news that many of the major commodities producers have been emerging markets. Now many of the commodities consumers are also emerging markets. In time, commodities markets could probably adjust to this change in supply and demand except for one thing. Both sides are heavily dominated by State-owned companies. {break}

State-owned companies are creatures of the state. Regardless of the country, they all function for political reasons, not for profit. They are not, nor do they have to be, transparent. They are usually powerful enough to write their own laws. The result is a lack of timely, complete, or accurate information. Often there is simply no information at all and they can change the rules at any time.

China represents a particularly good example. Buying by Sinopec and PetroChina, and China National Petroleum Corp, massive consumers, most likely caused the oil price spike in the spring of 2008.

Massive stockpiling of copper by Chinese companies pushed up the price of copper in 2009.

ExxonMobil is the largest private oil company in the world, but it only ranks 14th among global oil companies. The rest of the producers, many of which are also consumers, are State-owned. Chile’s State-owned copper company might be required to sell more to pay for earthquake reconstruction.

So not only are commodities markets being changed by ETFs and emerging countries, now there is the combination of the two, which could potentially lead to some real trouble.

Often, emerging market countries have sovereign wealth funds (SWFs). Like many other investors, they have come to realise that ETFs are a good and cheap way to invest and diversify.

For example, China's SWF, China Investment Corporation (CIC), is the fourth-largest investor in the US Oil ETF and it recently also took a 0.4% stake in the SPDR Gold Trust, the largest physically backed ETF.

CIC is worth an estimated $300 billion and its mere size could distort the markets, but that is not the only problem. It is the connections between the government as an investor and the government as a consumer and producer. Through their control of large businesses, governments could and do create bubbles that would also be very profitable for their investments in ETFs.

The general assumption of most investors is that commodities and the ETFs, which are supposed to represent them, move according to general economic trends.

Both the reality and information about the real reason for price movements in this asset class could be quite different. This does not mean that commodities are not a good investment.

Money can be made by taking advantage of the volatility. It does mean that assumptions about economics and safe diversification may simply be untrue.

(The writer, William Gamble, is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])

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COMMENTS

jeruvas edwin

10 months ago


From
JERUVAS EDWIN.M
Army Service Pensioner,
No. 79, Henry’s 1st Line,
Coromandal .post,
K.G.F, - 563118.
Mobile No: 9902293058.

To
The Manager.,
State Bank of India,
K.G.F. Branch.,
Robertson pet,
K.G.F, - 563122


Respected sir,
Sub: request to restore my communication pension w.e.f. 01/02/2001, My PPO No. S/065254/2000 Army, My S.B. A/C . No: 54031551610 – reg.

With reference to the above said subject cited, I wish to submit that, I was enrolled in the army from 02/03/1985 and discharged from the army w.e.f. 01/02/2001 after released on medical grounds.

On the receipt of my PPO, the commutation amount is not paid and later, I had received my commutation amount of Rs. 1,23,000/- with 40% amount with effect from 01/02/2001 and the monthly commutation to be recover from my service pension till date, but whereas as the period w.e.f 01/02/2016 but the communication of Rs.684/- is being deducted from my service pension till date.

Kindly to verify my pension slip commutation End date as is given wrongly as 01/01/2026 in lieu of 01/01/2016 and the copy of the same is enclosed herewith for your ready reference.

Your kind action in this regard is highly solicited.
Thanking you.

Yours faithfully

(JERUVAS EDWIN)
Encl : As above.
CC: To : The Chief Manger,
SBI . CPPC,
Mangalore – 575004 – For Kind Information pl.

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