China May Not Let The Yuan Depreciate.

In recent days of uncertainty, if people share a common view of a certain market, the dollar will continue to rise - the dollar has risen 23% since last June, though there are some fluctuations in the middle. It is also believed that the rising US dollar is bound to make the emerging market more vulnerable. Ren Yongli Stephen Jen of London SLJ Macro points out: "emerging markets may experience a partial currency crisis in 2015."

It is also a little worrying that economists at JPMorgan recently pointed out: "many emerging markets are beset by the combined effects of weak corporate profitability, over leveraging private sector, tighter financial conditions and poor governance", according to Morgan. In addition, they are concerned about capital outflow.

There are many examples in history that support the pessimists' views. A few years ago, many emerging market companies ignored the lessons of history and borrowed large amounts of cheap dollars, even though they lacked the dollar income. They believe that the dollar is unlikely to rise because of the intention of the US quantitative easing to lower the US dollar exchange rate.

But now the US seems to be moving towards increasing interest rates (no matter how reluctant), while the BOJ and ECB continue to stride forward on the path of quantitative easing. The euro and yen have fallen against the US dollar, and almost all emerging market currencies are also. Of course, the renminbi is a notable exception. Today, many market participants believe that the US dollar will go up further, the euro and yen will continue to fall, and the Chinese will inevitably devalue their currencies.

But both the US dollar and the renminbi may not meet those general expectations. Some people, such as David Bloom, HSBC's chief foreign exchange strategist, believe that the US dollar is at the top of the cycle. David Blum Bloom pointed out that the dollar has risen 40% since its lows in 2011, which is far more than its average gain of 20% for other currencies.

Bloom warned: "we are at the last painful stage of the feast of dollar rise. It's time to leave. "

Bloom added that the US recently released macroeconomic data is not as good as expected; the US government may not want to let the US dollar appreciate further, because it will have an impact on various areas such as corporate profits and exports, and the market position indicates that the US dollar has overbought. In addition, he pointed out that the US dollar tends to rise as a result of interest rate increases, but when the Fed does start raising interest rates, the US dollar will not rise further.

Similarly, market pairs China It is also wrong to look for the judgement of RMB depreciation.

Chen Long, Gave Kal Dragonomics, recently published a paper entitled "do not bet on devaluation of the renminbi" (Don 't Bet on a Renminbi Depreciation), pointing out that "China is a big exception". One reason is that Beijing has not yet pursued the traditional Asian mercantilist policy, that is, not playing the zero sum game that supports the export of currencies to lower exports.

Of course, China debt Large scale growth and a large proportion of debt dollar Valuation is a fact. From September 2013 to September 2014, the total cross-border liabilities of Chinese borrowers increased by nearly 40%. In 2014, China's non Renminbi denominated corporate debt increased from $270 billion in 2008 to $983 billion (over 1/4 of all debt in China was priced in US dollars), according to data from Morgan Stanley (Morgan). This is a constraint factor, but the main reason why the renminbi will not depreciate significantly is not related to debt, nor even related to capital outflow. Although China has $3 trillion and 800 billion in foreign exchange reserves, the Chinese government is still worried about the capital outflow and is closely monitoring it.

In fact, China has a more long-term and totally different plan. Unlike most competitors, China now relies on upgrading its position in the value chain, developing innovative technology, and leading edge research to gain competitive advantage. China is changing the export LED manufacturing mode of its own (and its Asian neighbours), and it will no longer solve the problem quickly by devaluation. At the same time, China's economic growth is gradually shifting to rely more on domestic demand. More importantly, China has concluded that the stable and gradual appreciation of the RMB is the best way to challenge the US dollar as the sole hegemony of the world's only reserve currency.

Outside China, there is much doubt about the possibility of such a result, but it is much more determined in China.