Attention to VAT Rebate Changes!
December 29, 2008
We want to redraw attention to the newly adjusted VAT rabates again. Because a total of 3,770 items, in the third export tax rebate increase this year, is put into affect in December.
The items involved include labor-intensive, mechanical and electrical products.
So those buying from China is better to learn whether there is a change for their products. Buyers can decrease their buying prices if there is are tax rebate increase on their items. Because, an export rebate increase means a decrease in the manufacturer’s total costs.
Rises in tax rebate rates varied among different items. For example, the rate on tires was raised from 5 to 9 percent while glassware was up 5 to 11 percent. Rates on labor-intensive products such as luggage, shoes and umbrellas were elevated from 11 to 13 percent.
The 3,770 items accounted for 27.9 percent of the country’s total exports.
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Yuan set to climb against US dollar this week
December 15, 2008
Chinese currency yuan or renminbi was pegged to USD until 2005. Since then, the currency is allowed to appreciate unfavorably to those importing from China and to factories in China making exports because it makes the Chinese exports expensive as USD lose its previous value. So, for those importing from China is better to closely follow the currency movements as it directly affects the purchasing costs. Here is the latest situation of renminbi as of 14th Dec:
THE yuan is likely to continue its appreciation against the United States dollar this week.
The Chinese currency edged up to finish at 6.8451 against the US dollar last Friday, according to the China Foreign Exchange Trade System. The yuan closed at 6.8482 by the end of the previous week.
Fan Gang, a central bank monetary policy committee member, noted the modest depreciation of the yuan in the previous week was normal amid short-term volatility, according to a report by Shanghai Securities News.
Meanwhile, the US last Friday said retail sales in the nation fell 1.8 percent last month for a fifth consecutive month amid weak consumer sentiment and tight credit in a deepening recession.
Source: Shanghai Daily
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Yuan Starts Making Exports Cheaper
December 3, 2008
The Chinese currecy yuan (renminbi) was in fall for the last 3 years until the Chinese economy started to be hit by global crisis. The currency has been stable for the last 3 months, but as the global financial crisis deepens and further affects Chinese economy, the yuan also started to decline,say, making the exports cheaper. Here is the news from Xinhua :
Yuan falls on talk currency decline is to help exports
By XINHUA
CHINA’S currency, the yuan, fell by the daily limit against the United States dollar for a second day yesterday, its fourth straight daily decline.
The yuan finished at 6.8870 per US dollar on the over-the-counter market, having declined 0.5 percent against its central parity rate. The central parity rate, announced by the China Foreign Exchange Trading System, was 6.8527 yuan per US dollar yesterday, compared with 6.8505 yuan on Monday.
On Monday, the yuan also fell by the 0.5 percent daily limit on the over-the-counter market to end at 6.8848 to the US dollar. Monday’s move marked the yuan’s biggest weakening since China ended the peg to the US dollar in July 2005.
The yuan’s central parity rate is based on a weighted average of market makers’ price inquiries before the market opens on each business day. The rate is allowed to fluctuate within a band of 0.5 percent on either side of the mid-point.
Zhao Qingming, a senior analyst at China Construction Bank, said the yuan depreciation resulted directly from a stronger US dollar.
“In addition, China has announced many pro-active fiscal and monetary policies to stimulate the economy, which fuels market speculation that the yuan might depreciate against the US dollar to help increase exports,” he said.
Ou Minggang, director of the International Finance Research Center at the China Foreign Affairs University, attributed the yuan’s depreciation to recent interest-rate cuts in China.
Last week, the People’s Bank of China, the central bank, cut the benchmark one-year yuan loan rate to 5.58 percent from 6.66 percent and the one-year yuan deposit rate to 2.52 percent from 3.60 percent. The 108-basis-point cuts were the fourth since mid-September and the largest since the late 1990s.
Ou said the weaker yuan could help support China’s exports.
Monday’s unusual yuan move buoyed shares of Chinese textile firms yesterday, betting the weaker yuan could help textile exports.
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Chinese currency set lower 5 days in a row
August 6, 2008
The central bank set the mid-point of the yuan’s exchange rate lower against the dollar for a fifth consecutive day Tuesday, stoking expectations for more fluctuations in the yuan’s exchange rate.
The yuan’s central parity rate stood at 6.8501 against the dollar Tuesday. Its traded peak came on July 17, when it was 6.8103 against the dollar.
Last week the yuan registered the largest weekly loss – 257 basis points – since the July 2005 exchange rate reform, which freed the yuan from a dollar peg and allowed it to float within managed bands.
Analysts said the yuan’s recent trend shows its previous rapid appreciation has failed to cater to policymakers, who have been fighting inflation but also want to ensure stable economic growth.
The yuan has appreciated by more than 6.6 percent so far this year while it appreciated by 6.9 percent against the dollar for the whole of last year.
While this has contributed to checking inflation, it has also driven many exporters to bankruptcy by increasing the prices of their products denominated in dollar.
“The faster yuan appreciation in the first half doesn’t seem to have gained any favors from the market and policymakers,” said Chen Xingdong, chief economist of BNP Paribas Peregrine Securities in Beijing.
Chen said the acceleration of the yuan’s revaluation has led to expectations of appreciation, influx of speculative capital and has hit the export sector. “It is detrimental to the economy.”
As a result, the central bank in its summary released after the second-quarter monetary policy committee meeting, has not mentioned – as it normally does – the use of market mechanism in deciding the value of the yuan. Analysts interpret the move as a sign of a policy shift.
“It indicates the central bank may no longer take yuan appreciation as a tool to fight inflation,” said Liu Dongliang, currency analyst with China Merchants Bank.
Policymakers may instead allow the yuan to rise with periodic falls to beat strong market expectations for appreciation, he said.
Liu held that the value of the yuan may continue to rise in the long term, but in the rest of this year, it will rise at most to 6.6 against the dollar. If the macroeconomic situation worsens, there would be substantial swings in the value of the yuan, according to him.
Chen from BNP Paribas Peregrine said the authorities should allow the yuan to fall to beat market expectations, although agreeing with the central bank’s view that the yuan’s value should be kept “basically stable”.
Source: China View
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Appreciation of Yuan slowing pace
July 22, 2008
21-July- As China marks the third anniversary of its currency reform, Beijing is preparing to slow the pace of yuan appreciation following complaints from exporters who are struggling to hold down costs in the face of a global economic downturn, analysts, government advisors and sources said.
The slowdown, which will follow the record pace of appreciation seen in the first half of this year, will mark the latest shift in an exchange rate reform strategy which has been under fire for several years for being either too cautious or too aggressive.
The yuan, which was estimated to be undervalued by 15-40 pct prior to revaluation, has risen by around 21 pct against the US dollar since it was depegged and moved to a managed float three years ago today.
The People’s Bank of China (PBOC) pushed for yuan reform in the months prior to July 2005 because the pegged system did not allow for any control over Chinese monetary policy, while expectations of a move were luring billions of dollars in speculative “hot money” into the country.
But three years later, China is struggling against its most serious inflationary bout in over a decade, the PBOC still does not have any monetary policy independence, and speculative inflows of hot money are estimated to be larger by several multiples.
The pace of appreciation in the three years of a managed float has reflected changes in China’s politics and its economy, both of which have played their roles in deciding how quickly the currency rises against the US dollar and the other majors.
Politics and economics will be brought to bear again on the pace of appreciation, analysts and government advisors said, with Beijing set to deliberately slow its rise in the final months of this year to help struggling exporters.
“The pace of appreciation will see periods of speeding up and slowing down, but the general trend is for it to slow,” said Zhu Baoliang, an economist and government advisor with the State Information Center, a think tank affiliated with the National Development and Reform Commission.
Zhu was a member of the one of the two teams that the government formed in early 2005 to assess the appropriate magnitude of the mid-summer revaluation.
The yuan has risen by nearly 7 pct against the dollar this year, already outstripping the 6.9 pct increase seen over the whole of 2007. Zhu predicted that the yuan could rise by around 10 pct over this year, implying another 3.5 pct rise for the remainder of this year.
The faster pace of appreciation seen in the first half was adopted in early December following the government’s shift to a “tight” monetary policy, and critics of the cautious nature of Chinese currency policy — including the US Treasury — were quick to notice and publicly encourage this shift.
The currency had risen by 11.8 pct prior to the December shift, and both Washington and Brussels — alongside a handful of voices in Beijing — were warning that the undervalued yuan was fueling unsustainable global imbalances and protectionism (the yuan has actually depreciated gains against the euro since July 2005 owing to dollar depreciation).
But the increase in the annualized pace of appreciation to as much as 17 pct in the first quarter this year has created its own problems, not least the threat posed by hot money. This has intensified a long-running debate among the tier of economists who advise the government on macroeconomic policy.
The apparent deterioration in monetary conditions has led to the near-daily calls from economists for a change in tack.
Some believe that only a virtual repegging of the currency — a sharp appreciation all at once or over a short period — would end the bets on appreciation, stemming the flow of dollars onshore and easing the PBOC’s sterilization burden.
“Since the July 21 revaluation, there has been this one strand of opinion calling for the yuan to rise faster to ease appreciation pressure, but the reality has been that the faster the yuan has risen, the bigger the appreciation expectations are,” said Zhao Qingming, an economist with the China Construction Bank in Beijing and a former PBOC researcher.
Opposition to the yuan’s speedy gains have a powerful ally in the shape of the Ministry of Commerce.
Data from the first half show the trade surplus falling by nearly 12 pct compared to the same period a year ago, with textile, shoe and clothing manufacturers particularly hard-hit. This has led to the yuan becoming the whipping horse of the export sector, which claims that currency appreciation is imposing an unbearable cost on operating conditions.
Others argue that a repegging would do nothing to end speculation and deprive China of a much-needed price setting tool and raise temperatures anew in the US and Europe.
They insist that the tide of hot money inflows — which have been estimated by Stone & McCarthy Research Associates at 160-180 bln usd in the first half alone, double the inflows for all of 2007 — require that aggressive action be taken to regain control of monetary policy.
Michael Pettis, a professor at Beijing University and observer of financial crises in Latin America in the 1980s and 1990s, insists that the monetary pressures caused by the government’s timidity will eventually force a significant one-off revaluation.
“Monetary policy since July 2005 and even before that can be basically described as “too little, too late” — the real problem is that there is no monetary policy in China, there is only a currency regime,” he said.
Although headline inflation appears to be easing with an increase in agricultural production, economists warn that the official data fail to provide an accurate picture of prices, and that the billions of dollars in inflows are fueling classic monetary inflation.
Unprecedented measures by the PBOC to control the flow of liquidity into the economy haven’t stopped M2 from growing by nearly 20 pct this year, even off last year’s impressive base.
Despite the Commerce Ministry’s opposition, some officials, who spoke on condition that their names not be published, said that the PBOC has a more powerful voice within the State Council than it has been given credit for. They also said that the debate over the yuan has little bearing on a leadership whose expertise in monetary affairs remains limited.
“This debate among economists isn’t having too much impact on policy,” said a source close to the cabinet.
One official argued that any significant overhaul of yuan reform policy would require the direct intervention of a leadership which, for now, is happy to leave the complexities of exchange rate issues at the ministry level.
“The Ministry of Commerce has been calling for a slower yuan rise since the start of this year but the pace of appreciation has actually sped up — this is proof enough that the PBOC is the most important force in deciding the yuan exchange rate’s movement,” said an official within the State Administration of Foreign Exchange.
That isn’t to say that the government is ignoring the implications of exchange rate policy choices.
The threat to the economic system posed by hot money has raised concerns at the highest levels of government and has prompted a tightening up of controls over the capital and trade accounts in recent weeks on the conviction that the trade surplus and foreign direct investment are acting as channels for bringing illicit funds onshore.
A one-off revaluation looks unlikely for a government which makes decisions by consensus and has demonstrated little willingness to take big, risky policy steps to complement China’s growing interdependence with the global economy.
Analysts insist that, even if a large one-off revaluation is the cure for China’s monetary ills, the unknown knock-on effects of such a move could have devastating consequences for an economy whose banking and industrial sectors remain stuck in transition between central planning and the market.
“Gradual and stable yuan appreciation remains the more realistic choice,” said Yang Yuanjie, a researcher within the Ministry of Finance said.
Source:XINHUA
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