Middle Times Society: Be alert to Taiwans devaluation of the RMB

Zhongshi Society

The strong ascension of the US dollar, coupled with the threat of the global trade war, has broken the currency in emerging markets.Argentina's Paodo and Turkish Licha have a high point this year, with a decline of 60%and 81%, respectively. The RMB, which is also the RMB of emerging market currencies in the past 4 months, has also depreciated by 10%.Times.The mainland is the second largest economy in the world. The RMB exchange rate is perceived. In the face of the fast and urgent derogation, the entire market focuses on whether it will break the RMB against the US dollar.

Why is Andrdquo; this number is so critical? The reason is that the renminbi bears a huge depreciation pressure at the end of 2016. Internal funds want to escape.After all kinds of foreign exchange control measures, it was successfully degraded to the RMB and did not degrade the seven. It is obvious that seven is an important psychological defense line of the pedestrian. Now, the economic situation in the mainland is once again facing severe challenges.There are disturbances of the Sino -US trade war that hinders the development of exports and the development of the technology industry, and the withdrawal of funds from emerging markets has allowed the RMB to face the challenge of seven.

Although the pedestrian states many times, claiming that the trend of the RMB is determined by the market supply and demand, it is not led by the bank.However, the outside world believes that the mainland will reduce the impact of the US tariffs and slow down the impact of the Sino -US trade war through the depreciation of the currency.Positioning, saving the economy and maintaining the stability of the currency value are equally important.In other words, while guiding the renminbi degradation to relieve the danger of exports, the bank cannot suddenly degrade the RMB (such as breaking the seven), and it must be stepped on the brakes (such as raising the foreign exchange risk reserve), andAvoid the confidence of the RMB holders, which triggers the crisis of funds to escape.Although the current approach does have some results, it also attracts some criticism.Recently, Trump was interviewed by Reuters, and once again accused the mainland of manipulating exchange rates, making the atmosphere of Sino -US trade negotiations more tense.

When the world focuses on whether the RMB can be kept, Taiwan may care about the impact of the RMB.Looking back at the period when the renminbi was degraded by 15%from 2014 to 2016, Taiwan not only was severely impacted by financial aspects, but also frequently hit the substantive surface.According to the statistics of import and export trade, in the past three years (2014-2016), the growth rate of Taiwan ’s export growth rate has increased for 20 months in 36 months, and the proportion has reached more than 50 % or more, which has also set the longest record in history.Further detail, the RMB exchange rate and Taiwan export growth rate, the correlation coefficient of the two also reached 0.53, which means that the depreciation of the renminbi will indeed have a great negative impact on Taiwan's exports.There are two main reasons. One is the direct competition with mainland products, and the other is the indirect impact of currency depreciation of emerging markets.

In recent years, in order to promote the autonomy of the supply chain (or localization), the mainland has actively encouraged the industry to independently innovate and develop its own brands, so that the import substitution effect is exerted to the extreme.The degree of competition has increased significantly.In this case, the strength and weakness of the currency usually play a decisive role. That is, when the products of the two countries are not significantly different, it is often the price factor that affects the decision of the sale and sale.Therefore, once the renminbi depreciates greater than NT $, the competitiveness of Taiwan's product exports will naturally be weakened.What's more, the depreciation of the RMB will generally drive the degradation of the currency of emerging markets and nearby countries, and it will also increase the external competitive pressure of Taiwanese products.

With the deterioration of exports, the Taiwan's economic performance, which has always relying on exports, naturally follows weakness.During this period from 2014 to 2016, the third consecutive seasons in the history of Taiwan's economy grew for three consecutive seasons (the third quarter of 2015 to the first quarter of 2016).The financial crisis is the Internet bubble crisis in 2001, and the other is the 2008 financial tsunami, but this time there is no similar major financial incident.There is a certain relationship.

The impact of the depreciation of this wave of RMB on Taiwan has not yet appeared, but it does not mean that it will not have an impact.The transmission of financial aspects to the substance is often backward.Observing the impact of the depreciation of the RMB from 2014 to 2016 on Taiwan's exports was only one year later (early 2015) began to appear. In the second quarter of 2015, the economic growth rate only dropped significantly.At present, there have been some signs that the RMB depreciation effect is gradually fermenting.For example, the recently announced profit of Nanqiao Foods, which has recently announced the net profit after tax in July 86%less than the same period last year, is nearly doubled, which is nearly doubled, mainly due to the renminbi degradation.