Taylor China Weekly February 28, 2014

RMB PhotoThis week, it’s all about the renminbi.

Some say, Beijing has instigated the steepest fall in the value of its currency since the devaluation of 1994, when the export boom began. The main reason being to slow down the strengthening of the currency, which has hit a record high, and this could result in reducing China’s competitive position in the export market vis-à-vis other developing economies.

However, the central bank might also be attempting to control a more ominous activity of Chinese companies borrowing US dollars offshore, converting to renminbi, and shadow bank lending in China at loan shark rates. Or possibly investing in the ever rising, and likely unsustainable, Chinese property market. At the very least, the move could curtail betting on a stronger renminbi through the carry trade of borrowing in US dollars in Hong Kong at lower interest rates and taking the currency risk of converting to renminbi without hedging.

Assuming the renminbi continues to appreciate, the repayment of these loans would be even cheaper. Financial analysts at UBS have estimated that over the past year Hong Kong and Singapore have lent Chinese companies up to US$200 billion, the majority of which has been repatriated to the mainland.

On a more interesting note to us luxury handbag aficionados, an incredibly lucrative career as a daigou agent appears to be well established and growing with several hundred thousand now in business in Hong Kong. Essentially the role of a daigou is to acquire luxury products in foreign markets on behalf of wealthy Chinese individuals, and shuttle them over to the mainland at a great savings. China e-Commerce Research Centre suggests the daigou market reached RMB74 billion (US$12 billion) in 2013. Legal or illegal, it’s up for debate, but the Chinese government might accrue more customs duties by restricting individual border crossings to at least 10 a day.

Finally, having seen an Air Quality Index (www.aqicn.org) of over 500 in Beijing (greater then 300 rates as hazardous) and over 150 in Shanghai (greater than 150 rates as unhealthy), in comparison to 30 in London and 34 in New York, all of the above is completely insignificant in the index of humanity. If only those US dollar borrowings could be invested in a state of the art pollution conversion machine, generating off the charts green energy.

- Cynthia Taylor China Weekly