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Macro Comment China

Macro Comment China — Revised USD/CNY forecast; effective CNY stable

China's authorities seem more committed than earlier to their pledge of keeping the effective exchange rate "basically stable". Our new forecast of a generally stronger USD in the short run but weaker in 2018-19 should translate into a weakening of the CNY versus the USD in the short term, but a stronger CNY in the longer run.

Bjarke Roed-Frederiksen, Economist |

Macro Comment China — China’s economic growth is no longer overstated

We introduce our new Handelsbanken China Macro Index, an alternative measure of economic activity in China that seeks to measure the 'true' pace of economic expansion. The index indicates that growth in Chi-na picked up in 2016, especially since early in the summer, and is now close to the officially-reported GDP growth figure of 6.7 percent y-o-y for Q3. The index also indicates that official growth numbers over the last two years have overstated actual growth by one to two percentage points.

Bjarke Roed-Frederiksen, Economist |

Macro Comment China — The Trump victory and China: Faster CNY depreciation

If the new President of the US does as he promised during the election campaign and imposes tariffs on Chinese imports, China will likely retaliate with, among other things, more marked CNY depreciation. Even the threat of a trade war could ignite accelerated CNY depreciation, and we thus adjust upward our USD/CNY forecast. A trade war would likely also have a negative effect on China's real economy, but we wait for signs that Trump will actually act on his words before revising down our GDP growth forecasts.

Bjarke Roed-Frederiksen, Economist |

Macro Comment China — All bark and no bite: expect a weaker renminbi

China's authorities are trying to shift focus from the exchange rate versus the US dollar and toward a basket of currencies instead. At the same time, the authorities are signalling stability ahead with the purpose of dampening capital outflow and expectations of a marked weakening of the renminbi. In reality, however, the pursued exchange rate policy does not live up to the statements: the authorities are all bark and no bite. Instead of ensuring a stable exchange rate, it seems as though the authorities are trying to weaken the renminbi as much as possible without sending shock waves through the Chinese and global financial systems.

Bjarke Roed-Frederiksen, Economist |

Macro Comment China — China’s renewed construction boom supports iron ore and dry bulk shipping

China's property market has recovered, as growth in construction investment has turned positive again. We expect the renewed construction boom to continue throughout 2016 and somewhat into 2017 despite the more challenging outlook for the overall economy. That boom, with an accompanying increase in the growth of iron ore imports, should help the price of dry bulk shipping to recover meaningfully from the record low it reached in early 2016.

Bjarke Roed-Frederiksen, Economist |

Macro Comment China — Why we expect only a moderate renminbi weakening

We doubt the Chinese government’s commitment to opening the capital account. Although we expect monetary and credit policy to be devoted to stabilising the domestic economy, we believe the government will keep the exchange rate within rather strict boundaries. However, the recent publication of a new effective currency index indicates that authorities have become more serious about loosening the ties with the USD. This makes us expect a continued, though only modest weakening of the renminbi versus the USD.

Bjarke Roed-Frederiksen, Economist |