On October 8, the PBoC published an essay – in both English and Chinese – defending China’s exchange rate policy and pushing back on foreign calls for the RMB to appreciate.
Just like MofCom’s July essay on overcapacity, the piece takes aim at the fundamental premise of Western policymakers’ complaints rather than answering them directly.
Beijing has now taken two key economic issues that advanced economies keep raising – the currency and overcapacity – and essentially said “suck it up, we’re not changing.”
The upshot: China is going to press this model until something breaks.
On this episode, Trivium China Podcast host Andrew Polk sits down with Dinny McMahon (Trivium’s Head of Markets Research) to unpack:
The PBoC’s three arguments defending its currency policy – from competitiveness to the lack of any agreed way to value a currency – and why Dinny thinks there’s some truth in each, while the essay as a whole “misses the wood for the trees”
Why capital controls complicate the case for a stronger RMB: with deposit rates thin and property and stocks sagging, how much money would leave if China let it?
The PBoC’s proposed fix: adjusting global imbalances by having deficit countries (read: the US) tighten their budgets while surplus countries like China boost consumption, and why Dinny calls this a pie-in-the-sky solution
Why Beijing’s playbook with Europe looks like buying time, trading small concessions for room to keep its model intact
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