George Soros (File photo)
The billionaire investor George Soros has grasped the headlight of the Davos World Economic Forum for the last two years.
Last year, he announced that he had “finally” retired from managing money to devote himself to political philanthropy. This year, at the same stage, he declared “war” on China, claiming he had short sold Asian currencies.
Given his influence, the global financial market saw more severe fluctuations and Asian currencies are facing more speculative pressure.
However, Soros’challenge to the RMB and Hong Kong dollar are doomed to fail, without any doubt.
Although the Chinese economy had a rough year in 2015 with a falling growth rate, volatile stock market and RMB depreciation against USD, its fundamentals still stood out among major economies.
Last year, the economic growth of China was twice that of the U.S. Against the 10-percent-drop in global trade, China’s export only declined by 1.8 percent.
In addition, China is still upgrading its industrial structure and leading in more areas.
These statistics indicate that China’s macro-economy is far more stable than those of other BRICS countries and most developed countries. Economic shock alone won’t overturn China.
It is true that in 2015, the RMB saw a moderate devaluation against the USD. However, it is just a slight correction since, except for a minor fluctuation in 2000, the RMB has been appreciating against the USD for nearly 20 years.
In the meantime, China has become the second largest economy in the world, and has to end the yuan's de-facto peg to the U.S. dollar. In global financial market, China can withstand the temporary dial-back of exchange rate for the sake of independence in monetary policy. Market participants will get used to the flucuation sooner or later and have less over reaction.
The USD is likely to be strong against other emerging currencies for a long time. But it is hard for the dollar to be strong against the RMB for the long run, since China is still maintaining an expanding trade surplus.
The US economy, however, has a severe case of Dutch disease, which means a decline in some sectors caused by development in a specific sector.
Even though the U.S. is trying to reboot its real economy, it is struggling to continue its “re-industrialization”. Its trade balance therefore deteriorated as the economy recovers. The strong momentum of USD against RMB is temporary.
From a different perspective, Soros’ “war” on Asian currencies will help China deepen fiscal and financial cooperation whether in East Asia or along the “Belt and Road”.
As current East Asian currency cooperation mainly focuses on currency swaps and repurchase, Soros’ attack on Asia will be an opportunity for China and other East Asian economies to upgrade their monetary cooperation amid the turmoil in emerging markets.
This article is edited and translated from 海外版望海楼：向中国货币宣战？“呵呵”, Source: People's Daily Overseas Edition.
The author is a researcher of the research institute of China’s Ministry of Commerce.