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Insight Perspectives
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well aware that the mainland needs to move up the
value ladder, which requires a ”moderately overvalued”
currency. The current downturn in the manufacturing
sector, however, has proved more severe than
expected. There are no signs yet of an upcoming
rebound in manufacturing activity, surely not as long as
excess capacity remains a problem in many industries -
read the Xinhua article,
China to tackle industrial overcapacity .In December, a report showed that
cargo handled at major seaportscontracted at the fastest
pace since March 2009;
cargo handled by rail(November 2015) declined at the fastest rate ever seen.
Weakness in the manufacturing sector is now so severe
that Beijing seems inclined to act more aggressively.
The domestic economy needs more monetary easing,
which is only possible if the Chinese central bank, PboC,
allows an overvalued yuan to depreciate more
significantly (read the Insightview article,
The Chinese dilemma - something needs to give in ). This was also
why Chinese policymakers allowed the yuan to
continue depreciating against the US dollar in
December even though the euro appreciated.
In 2016, Beijing will stay on a path of further
devaluation, which could pull the yuan down to 7.0
against the US dollar – see the
2016 Outlookon page