Goldman Sachs predicts 5% Yuan evaluation increase

Goldman Sachs is predicting China will raise by 5% it's currency. I think we've seen these reports before, but because China's currency manipulation is such a major factor in the U.S. trade deficit, this is worth a read.

Goldman Sachs Group Inc. Chief Economist Jim O’Neill said China may be poised to let its currency strengthen as much as 5 percent to slow the world’s fastest growing major economy.

“I have a strong opinion that they’re close to moving the exchange rate,” O’Neill said in a telephone interview from London after China’s central bank told lenders on Feb. 12 to set aside larger reserves. “Something’s brewing. It could happen anytime.”

China has a serious problem with a housing bubble, with some properties rising 40% in value in a year.

Just last week China moved to rein in lending.

China’s central bank moved late Friday to reduce lending to companies and individuals by requiring large commercial banks to increase the amount of cash they park with the central bank. The move, which came earlier than most economists had expected, was meant to slow China’s breakneck economy and inflation.

It was the second time in a month that the central bank had directed the country’s banks to increase reserves. In spite of the earlier edict, which took effect on Jan. 18, banks actually lent more money in January than in the previous three months combined, illustrating just how hard it is for Beijing to modulate its rapidly expanding economy.

Yet, doing a one time revalution of the Yuan, while sorely needed by the United States (try more like 33% valuation increase), will this truly put the breaks on what parts of the economy China wishes to cool?

Is this a valid prediction or more press release media manipulation? Seems to me China has no plans on stopping their export driven economic Armageddon mercantile trade machine anytime soon.

G-7 as well as the United States all have been demanding China stop it's currency manipulation.

More details on China's housing bubble:

Beijing’s office vacancy rate of 22.4 percent in the third quarter of last year was the ninth-highest of 103 markets tracked by CB Richard Ellis Group Inc., a real estate broker. Those figures don’t include many buildings about to open, such as the city’s tallest, the 6.6-billion yuan ($965 million) 74- story China World Tower 3.

Empty buildings are sprouting across China as companies with access to some of the $1.4 trillion in new loans last year build skyscrapers. Former Morgan Stanley chief Asia economist Andy Xie and hedge fund manager James Chanos say the country’s property market is in a bubble.

So, ok, we have empty buildings and even empty factories, yet GDP quarterly growth rates greater than 10% and China is trying to rein in lending.

When you kind of shake your head, don't believe China will stop currency manipulation and additionally think things are just not adding up here, it's nice to see someone else questioning the news.

If China wants to make less money available then what is it doing with stimulus at 14% of GDP, the highest in the world?

I agree with Mish, if China indicates it will float their currency, speculation will come in on masse via the carry trade, but I also wonder why they would want to slow down exports, which would happen with a currency re-evaluation.

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IMF - China currency seriously undervalued

Reuters:

The Chinese renminbi has depreciated in real effective terms in tandem with the U.S. dollar and is assessed to be substantially undervalued from a medium-term perspective," the IMF said in a note to a G20 ministers meeting in Seoul, South Korea, at the weekend but only released on Monday.

The IMF has said this in the past so I'm not so sure it means much. China seems to be hell bent on blowing off any international pressures on their currency peg to the U.S. dollar.

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