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Commentary: Those shorting China doomed to fail

By He Zhenhua (People's Daily Online)    17:35, January 29, 2016

(File photo, Xinhua)

Headlines including “Billionaire investor shorting Asian currencies” and “International hedge fund acknowledges shorting RMB” have grabbed global attention since billionaire investor George Soros expressed his bearish views on China at the Davos World Economic Forum. All those tones, however, cannot hold water.

On one hand, as the world’s second largest economy, China’s economy, given its size, cannot be shaken by a few speculators.

On the other hand, the “tools” in China’s financial toolkit are more than capable of tackling any potential risks.

China has the biggest foreign reserve pool and a complete market regulation system. In addition, it has launched reform on RMB exchange rate regime, and enhanced supervision on short-term speculative capital flow as well as the trade of cross-border financial derivatives.

Therefore, China has enough “cards” in its hand to cope with risks brought by short selling.

Take the foreign exchange market as an example. Earlier this year, some speculators attempted to profit from speculation in the RMB, causing abnormal fluctuations in the exchange rate of offshore RMB.

The People’s Bank of China, the country’s central bank, introduced regular reserve-deposit ratio policy to offshore RMB and enhanced management on its liquidity. Both measures effectively stabilized the exchange rate.

China has enough tools to fend off impact on its currency. If the stabilization of the yuan’s rate is a stress test, then the result shows China is completely capable of safeguarding the stability of financial market.

Those who try to short China will only cost themselves.

Soros, for instance, once took a huge sum of money to Hong Kong in the hope of scoring from shorting the HK stock market after attacking the Southeast Asian financial market. However, with the support of the central government, the Hong Kong SAR government adopted tough measures and cost him dearly.

China now has a foreign exchange reserve worth 3.3 trillion U.S. dollars. In 1998, the reserve was less than 150 billion U.S. dollars. Even Soros has to admit that China has the resource and more flexibility in policy options than other countries.

The 30-plus-year-long reform and opening up has proved that those who attempt to short China won’t benefit from it, instead, they will lose an opportunity to prosper with the booming country.

As a foreign observer pointed out, knowledge of China’s politics is the key to understand its economy. Failure to understand the socialism system with Chinese characteristics means one will never comprehend the success of China’s reform and opening up policy.

Since the reform and opening up, Chinese economy has witnessed a rapid and stable growth for over 30 years without large periodic fluctuations

China has effectively contained overheated economy to achieve a soft landing, and conquered economic recession to maintain a stable growth. Domestic difficulties and global risks have never stopped China.

Those achievements are miracles for a developing country with over 1.3 billion people and an economy with increasing level of marketization.

This also demonstrates the unique advantages of socialist economic and political system with Chinese characteristics as well as the power of macro-economic control.

The destiny of China’s economy now remains in its own hands.

Those families who have booked flights to travel abroad, and the booming on-line education service perfectly prove the words of Chinese President Xi Jinping, "China's positive economic fundamentals and long-term trajectory remain unchanged. What also remain unchanged are the basic facts that China economy has strong resilience, great potential, and ample room for maneuvering. The strong support and conditions favorable for a steadily growing economy have not changed. And the forward movements of the country’s economic restructuring and upgrading have not changed."

Those words are not hollow, but built on facts. Though with difficulties ahead, those who truly understand China all believe that China's economy, strong and stable, will offer no opportunity for short-sellers. 

This article is edited and translated from 人民论坛:“做空”中国只会做空自己, Source: People's Daily


(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Editor:Bianji,Wu Chengliang)

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