China threads carefully with the US dollar to avert Trump’s ire

The most powerful commodity the US possesses is neither technology nor a specific manufactured product, but it is the US dollar. How the dollar fares in the Chinese market, its competitiveness against the Chinese Yuan and the influence of its dominance will always be a major issue of concern to the United States.

Negotiators closely watched the exchange rates from the beginning of the trade dispute between the two nations.

The Chinese Yuan is reaching a psychological breaking point of RMB7 against 1 USD. It is at 6.92 and is bound to slide further as the Peoples’ Bank of China struggle to keep it below 7.

If it breaks the 7 mark Chinese goods exported to US will be cheaper while US goods exported to China will cost more but it will not offset the new tariff increase imposed by the US.

This is how China is playing hard to change the rules of the game without raising the ire of the US which accused the Chinese of currency manipulation in the past.

China is preparing for structural changes in its financial market as the core strategy and this means a further opening-up of its financial market, one of the focus of the trade negotiations between Beijing and Washington, says Anbound Malaysia.

“Under the pressures of the U.S.-China trade friction, China has chosen to open-up its market, among which the most important aspect is the financial opening-up.

“In China, its bond, stock, futures and rating markets, and brokerage and investment banking markets have all increased their opening-up to the outside world.

“Overseas funds are being deployed and have increased their access to the Chinese capital market. Hedging tools such as futures are in a state of strict management and maybe included in the financial market opening-up,” says Anbound.

China is looking to add more Chinese financial market trading products in the index, such as the MSCI index, FT FTSE index and Bloomberg’s bond index among others.

All these coupled with the service guidance and the driving factor of technology will increase the allocation of international capital to China’s capital market and encourage more foreign capital to enter China, the research house says, adding it will lead to greater transparency.

“Financial opening-up is an inevitable path for China, and China needs to consider carefully on the adaptation of the relevant policy. This requires time and will pose trials. There will also be no fundamental changes in the short term. The flow of funds will also
change the Chinese securities market.

“Some Chinese companies’ funds will be absorbed by foreign capital, and some corporate funds overflow from the securities market may turn to industrial capital. If this kind of capital shift occurs, the results will be ‘quite’ significant, and in the meantime produce a series of complex effects and changes,” says Anbound.-/TISG