by Viraj Shah
There was further proof of protectionist policy making by China and the United States on Friday.
The Chinese government has stringently capped forex transactions by local and foreign banks, in a bid to check devaluation of the Yuan. However, the government claims that it is only tracking down ‘fake deals’ and not influencing the negative ‘sentiment’ of Yuan.
Meanwhile, the newly instated Presidential team in the United States has created a legislative process to cut down the number of visas and employment for immigrants. Most of the immigrants are willing to work at lower rates just so that they can live in America. Protecting American jobs has been Trump’s manifesto and he continues to set processes in place to achieve the same. This could also include trade ties with China.
The Chinese government extended to small forex deals as well. Though officially denied, the country’s apex forex body, SAFE (State Administration of Foreign Exchange) has issued fresh guidelines which cap the value of transactions every bank can handle.
Earlier inter-banking transaction higher than $50 million needed approval. However, the agency has denied that it is capping forex deals. Bank officials of foreign and state held banks admit that there would be retribution if they were to reveal that the latest rules and limitations on forex deals were orally announced by SAFE. Executives of the bank have received explicit instructions not to use the acronym SAFE or other agencies to turn away transactions beyond the cap for individual forex deals. These fresh forex polices are being implemented to minimize risk of fake deals’ and contain the valuation of the Yuan. In fact deals as small as $5 million now require government agencies approval, as per fresh unwritten guidelines issued by the affiliate of the Chinese central bank.
Export Decline Unexpected
These policies are a necessary part of the larger strategic management plan of the Central Bank of China, especially in the context of drop in exports by China. In its latest economic reports, the government has announced that export in the month of December were far below the expected figures. The slip to 6.1% from 2015 export quantities has further pressurized the protection instincts of the Chinese government. The decline in exports remained higher than the 3 percent drop that analysts had predicted. Chinese exports were impacted across major market regions it operates in, including the United States.
With Trump expected to further complicate trade relations with China, analysts are trending negative sentiment about Yuan. And hence the back-door manoeuvre by the Chinese forex agency to control the inflow of foreign currency and ensure Yuan value remains in control.
Immigrants play an important role in the growth of USA. However, Trump’s intentions are pretty clear as he aims to create jobs for Americans. The intent is good but it will require people to develop their skills and compromise on pay in order to take on immigrants. China has always been protective when it comes to foreign companies doing business in their yard.
by Viraj Shah