The People’s Bank of China (PBOC) is likely to pursue a stable-to-weaker renminbi this year, a survey of investors showed recently.
Around 55% of investors in the poll carried out by Societe Generale believe the Chinese central bank will stick to a policy of currency stability over the year ahead, while 42% expect China to actively seek a depreciation of the yuan (CNY).
The survey was conducted between February 27 and March 3 on a sample of 63 clients of Societe Generale.
If a devaluation of the renminbi were to go ahead, 73% of the respondents expected it to be under 4%, while 7% said it would be between 5% and 10%.
Around 2% of respondents saw a devaluation of more than 10% coming this year, while the rest did not believe there would be any devaluation of the Chinese currency.
In terms of levels for the exchange rate, 46% assigned the highest probability to a fluctuation in the range of 6.20 to 6.30 for the USDCNY spot rate.
This was followed by 31% expecting a range of 6.30 to 6.40 for the exchange rate of the yuan to the dollar, and 18% expecting USDCNY to trade above 6.40.
The majority of investors surveyed expect the USDCNY fixing to be increased over the course of one year.
In terms of what policies will be pursued by the PBOC, more than 60% of investors believe a widening of the yuan’s trading band will be the preferred option.
Next on the list was a higher fixing daily exchange rate, favoured by more than 55% of respondents, with the third being intervention by selling the dollar.
Less than 10% expect devaluation of the Chinese currency.
Chinese trade data released at the weekend show that imports fell sharply while exports accelerated last month, relieving pressure on the PBOC to devalue the renminbi.
Exports jumped 48.3% in dollar terms in February after falling by 3% in January, but this is partly due to base effects, because in the same month of last year exports actually fell.
One caveat is that because of the Chinese New Year, which is variable, data for the first two months of the year are always difficult to interpret.
A better way to look the data is to look at both January and February, and exports jumped by 15% in the first two months of the year. The advance is still robust and reinforces the view that the PBOC is unlikely to change policy abruptly.
Looking at where exports went, those to the US rose 21% in the first two months, while sales to the European Union rose by 12.6% year on year.
Chinese exports to the Association of South-East Asian Nations (ASEAN) saw the biggest growth, jumping by 38% in the first two months of the year compared with the same period a year ago.
Imports fell by 20% in the first two months of the year. This was partly due to cheaper commodities, but it also highlights the weakness of the Chinese economy.
Consequently, this led to a surge in China’s trade surplus to $60.2 billion in February. The first two months’ average trade surplus was $60.1 billion, compared with $4.4 billion in the first two months of last year.