Currency stress tests indicate Beijing 'readying' yuan move

 

SocGen says one-off 5%-10% appreciation coming in April or May

Additional evidence that China is preparing to allow its currency to appreciate is accumulating, with various government bureaus reportedly conducting their own "stress tests" on the effect a stronger currency would have on the nation's industry.

Chinese media reported earlier in the week that the Ministry of Finance would send researchers to study the impact of currency gains on exporters and processing manufacturers. Meanwhile, findings from a similar study, conducted by the Ministry of Commerce, are due to be released by April 27, according to a report Friday in China Business News. 

The Commerce Ministry is also readying a six-point study on measures that would boost Chinese imports and foster more balanced foreign trade, according to broker Société Générale. 

"China is not abandoning plans for yuan appreciation/revaluation, despite what many are interpreting as a political environment that is growing hostile to such a development," wrote SocGen economist Glenn Maguire in Hong Kong.
The developments, Maguire said, indicate China is preparing to shift its policy stance in a manner that will be "more substantial" than a mere gradual yuan appreciation. 


Instead, SocGen is forecast a one-off revaluation of 5% to 10% in either April or May. "A move of this magnitude will negate the risk of the protectionist card being played in the U.S. midterm elections," Maguire wrote. 

However, Standard Chartered analysts said Friday markets were now expecting a lower rate of annual yuan appreciation this week, likely as a result of contradictory signals emanating from Beijing on its currency. 

The futures markets were pricing in 2.2% to 2.8% of annual yuan appreciation against the dollar, down from the 3% rise indicated last week.
Standard Chartered said it was advisable for companies that trade with China to begin hedging currency risk.