All said and done, there were no deep fundamental economic reasons last month for the simultaneous swoon of stock markets around the world. “But I think the real debate should be either a hard landing or a possible financial crisis”.
According to a survey of economists conducted by CNNMoney, the Chinese yuan could fall another 2.8 percent – versus the USA dollar – by the end of the year.
That contrasts with more positive views in the market. One of the economists surveyed said the Yuan could drop to 7.50 against the US dollar by the end of 2016, representing a 17.8 drop from current prices.
Analysts at Capital Economics also noted on Monday that signs were emerging that economic activity would improve, with more fiscal spending and credit growth on the cards.
In a surprise move in mid-August, the People’s Bank of China cut the renminbi’s reference rate dramatically to send the Chinese currency in the onshore market lower in a bid to narrow down the difference between the CNY rate and the CNH rate, and the International Monetary Fund said that the PBOC is expected to continue its efforts to do so. But they reveal a hidden story, that a significant fraction of the Chinese company subsidiaries in the Caribbean and Hong Kong are mere shell companies. “Why would such small economies need so many debts?”
Yuan-based negotiable certificates of deposit (NCD) reached 2.85 billion yuan at DBUs in July, the first official data available after the central bank allowed lenders to issue the certificates denominated in foreign currencies.
The PBOC also said in the same statement that financial institutions in the country sold more foreign exchanges than the central bank in August, which was mainly due to ample foreign-currency liquidity in the nation’s banking system and high demand for foreign currencies from enterprises and individuals. Many of these dummy companies were likely created to facilitate a hidden capital outflow not really intended for business purposes, but to remove money from China on behalf of their owners. “But this will also mean tightening capital controls”.