sharpe_mind

Why China's Exporters Are Complaining Loudly

bill stenner- the Euro is so overvalued precisely because the RMB is so undervalued. China is forced to buy so many dollars because it keeps RMB undervalued, but it doesn't want to hold all its currency reserves in USD, so it buys enormous quantities of EUR every day. The reason EUR has been able to raise to what by any valuation indicator are ridiculous levels is because it is the best alternative to the USD for the reserves of Asian and Middle Eastern central banks. In fact the same goes for pretty much every flexible currency that doesn't face massive intervention, including GBP, CAD, AUD....the one exception being JPY, which nonetheless has been rising signficantly lately.

continuum, trade balances aren't the only factor one can use to explain a currency's value. Numerous other factors are important, including relative interest rates and structural savings/investment vs consumption levels. But the bottom line is that if the PBOC stopped buying USD tomorrow, CNY would rise tremendously. It would take a serious appreciation before China's private sector started sending its money abroad, as the lackluster reception of QDII and the small outward FDI show. Besides you probably need that very large appreciation to occur in the first place before corporate China would feel like sending money aboard was even worth fighting the CNY's continual appreciation.

paultaut- I agree 100%. Just look at the stock price of WMT, which accounts for an astounding 30% of foreign purchases in China and 10% of all US imports from China: ipezone.blogspot.com/2...