Continued Expansion Of The Current Account Surplus Will Create Pressure On The Appreciation Of The Renminbi.

The increase in China's current account surplus is the result of various factors, including global demand (led by the US economy), the relative downturn in China's domestic economy and the decline in global commodity prices.

China's trade surplus has expanded significantly since July of this year, and the cumulative trade surplus in the first ten months of this year expanded to 276 billion 700 million US dollars, compared with 200 billion US dollars in the same period last year.

This has benefited from steady growth in exports.

In the first three quarters of this year, if the differences in trade data between Mainland China and Hongkong were adjusted, the growth rate of China's exports increased from the first quarter to 3.1% in the second quarter, 7.8% in the 7.8% quarter and 11% in the third quarter.

At the same time, the import growth rate of each quarter has been maintained at a weak level of 1% to 2%.

To a certain extent, the downturn in nominal imports reflects the price effect: import prices fell by 2.7% year-on-year in the first 9 months of this year, while commodity prices declined more, while the import volume of major commodities, including iron ore, copper and crude oil, increased in real terms this year.

In 2015, JP Morgan believes that the global economy will continue to accelerate and China's exports will continue to grow steadily. We expect exports to increase by about 9% in 2015.

On the other hand, as China's domestic demand continues to be weak, the real estate sector continues to adjust, and the pressure on production capacity, the growth of major commodity imports may slow down, and commodity prices may continue to weaken.

We believe that these two factors will lead to slower growth in nominal imports.

Considering the impact of oil prices, we estimate that oil prices will drop by 10 US dollars per barrel, and China's current account surplus will be about 0.3% of GDP.

Combined with these factors, China's trade surplus will expand further, and the current account surplus will rise to 3.5% of GDP in 2015.

Continuously expanding

More money should be imposed on the renminbi.

Pressure.

In fact, after June 2014, with the PBC fading out of the foreign exchange market intervention, the expansion of the trade surplus was the main driving force for RMB appreciation since June.

In the third quarter, the trade surplus climbed beyond the market expectation, and the arbitrage paction resulted from the spread of domestic and foreign spreads led to the reversal of the RMB trend.

The yuan appreciated about 2% against the US dollar between June and October.

Will the renminbi continue to appreciate in 2015? We don't think so.

We expect that by the end of 2015, the exchange rate of US dollar / RMB will be 6.15, which is the same as that we predicted at the end of 2014 at 6.15.

But we expect the exchange rate to show more volatility: in the first half of 2015, the RMB could depreciate more than 6.20 against the US dollar due to the weak domestic economic performance and the strong dollar expected by the Fed.

A strong dollar is a major challenge for the renminbi in 2015.

Our global team predicts that the US dollar will continue to be strong against other major currencies in 2015, resulting from monetary policy differences among the major developed economies (the Fed may start raising interest rates in June 2015, while the BoJ and ECB will increase quantitative easing).

Most emerging market currencies may follow the euro and the yen against the US dollar.

Risks should not be ignored.

If the renminbi appreciates against the US dollar, then the appreciation of the RMB effective exchange rate will be too fast, which may drag on exports.

Exports are among the few bright spots in the economy.

We believe that a better policy option is to maintain the relative stability of the RMB real effective exchange rate, which means that in 2015, the RMB should be moderately depreciated against the US dollar.

However, the increase in the current account surplus means that the renminbi will not be able to depreciate against the US dollar without the central bank intervening heavily.

Considering the various factors affecting the exchange rate in 2015, such as trade surplus, arbitrage, and the internationalization of RMB supporting the strength of the renminbi, China's domestic weakness and support measures for export support the renminbi's weakness. We believe that in 2015, although the RMB exchange rate fluctuated significantly, it generally lingered in the region.