Sunday, January 24, 2016

China’s Forex Fast-Track

The news agency Reuters recently reported that China is to boost risk controls and speed up the development of its foreign exchange market during 2016. The State Administration of Foreign Exchange (SAFE), posted information on its website detailing the proposals which also include the opening of China’s capital account and improvements to the management of its foreign exchange reserves.

The statement was posted after an internal meeting in Beijing that was attended by Pan Gongsheng, who is the newly appointed deputy governor of China's central bank and the party secretary for SAFE. The news came just as the yuan reached its lowest level compared to the dollar in five years, news that sent markets around the world into a panic for fear of competitive currency devaluations. China has also ordered some of its biggest banks to limit the purchase of the US dollar.  

The integration of China into the world economy has been led by its move to a private sector economy and the growth it has achieved from this has been a global phenomenon. Further policy change is in the making and will see more liberalisation of China’s Forex markets. Will this lead to continued growth for the Chinese economy?

China’s economy is growing at a slower rate now than it has seen in the past 25 years and the International Monetary Fund is predicting that over the next two years growth will slow further, falling from 6.9% in 2015 to 6.0% in 2017. China is pushing a move from an economy driven by exports and investment to one driven by consumption and services. However, some experts are arguing that this transition is being made too quickly and that a sustained focus on productivity is what is needed in order to sustain growth and that doing so would ensure a more stable move to the consumption and services economy they desire, over time.

When China sneezes, the rest of the world catches a cold, is a cliché that has been used time and again, but maybe now is a pertinent time to time to ask yourself, how will China’s changes to their foreign exchange regulations affect global trading and whether it is good for China, or not, is there an opportunity for you to fast-track some financial gain?

While pondering this, bear in mind the words of economist Tony Nash, who told the BBC; "China's growth in 2015 was equivalent to the size of the entire economy of Switzerland or Saudi Arabia.”

“That's not an easy feat and shows the magnitude of the accomplishment,"  Nash added.