US Credit Downgrade, Chinese Enterprises Panic

Under the influence of the US Congress raising the debt ceiling, standard & Poor's, one of the three major international rating agencies, has reduced the US sovereign credit rating from AAA to AA+. Although authorities have repeatedly stressed that the position of the US dollar as the main international reserve currency will not waver, Luo Jiahui, the new US ambassador to China, has also expressed "China does not need to worry about the security of US dollar assets" after its performance. However, the fact is that the global debtors of the US dollar are suffering. China, the largest holder of US debt in the world, is facing the dilemma of whether to continue to hold us debt because of the sharp reduction in US dollar assets in foreign exchange reserves and the decline in real purchasing power of foreign exchange due to the downgrading. Chinese businesses and banks are also unhappy. Moreover, there are two risks of the current recession in the US economy. This is the biggest panic in the world.

　　 RMB appreciation and external reserves

"China has two options at present, or let the renminbi appreciate substantially, in order to reduce the trade surplus and foreign exchange reserves, or continue to buy US Treasury bonds. "For the impact of S & P's downgrading of the US rating on China," Roubini, an economics professor at New York University, said, "Dr. doomsday". But he also pointed out that if the renminbi appreciates sharply, it will crack down on exports. He concluded that "China will continue to buy US debt." "However, Wang Rongjun, an American researcher at the Chinese Academy of Social Sciences, said RMB appreciation In order to reduce trade surplus and foreign exchange reserves, it is imperative to do so, because whether China will insist on holding US debt in the future, the losses caused by the sharp decline in foreign exchange actual purchasing power are inevitable.

The first half financial statistics report released by the people's Bank of China in July 12th showed that as of the end of 6, the balance of foreign exchange reserves had reached US $3 trillion and 197 billion 500 million, up by 30.3% over the same period last year, ranking first in the world. China foreign exchange reserve It has broken through the high position continuously, causing many concerns. Analysts here believe that the trade surplus is still one of the reasons why the number of foreign exchange reserves continues to rise.

According to the data released by the General Administration of Customs in August 10th, China's trade surplus hit a 30 month high. In July, China's trade balance reached US $31 billion 480 million, an increase of US $9 billion 210 million over June, a record high since February 2009. Experts pointed out that in the context of the United States and Europe, the debt crisis has been delayed and the global economic recovery is weak. China must take measures to narrow the trade surplus and reduce foreign exchange reserves.

The US debt crisis has also been given to China. foreign exchange reserve The investment model which is more dependent on the US debt market is a wake-up call. Zhou Xiaochuan, governor of the central bank, publicly stated in April 18th that foreign exchange reserves had exceeded the reasonable level needed by China. Excessive foreign exchange accumulation led to excessive liquidity in the market and increased pressure on central bank hedging. The State Council has proposed to reduce excessive accumulation of foreign exchange reserves, and must manage well the accumulated part, one of which is diversification.

Tan Yaling, Dean of the China Foreign Exchange Research Institute, said the dispute over the US debt ceiling gave China the inspiration to speed up the long-term institutional reform and reduce its dependence on the US bond market. Otherwise, in addition to continuing to buy a few varieties such as US debt and European debt, it is difficult to find enough depth and breadth of the market to undertake huge external reserves.

Chen Gong, chief researcher of Anbang consulting, suggested that we should first take some insurance measures, such as hedging to some extent, to prevent the RMB from appreciating significantly. At the same time, we should speed up the process of RMB free convertibility and increase the degree of freedom of overseas investment of enterprises and residents, thereby increasing the willingness of the private sector to purchase foreign exchange and slowing down the growth of huge foreign reserves.

In fact, the renminbi has appreciated substantially. Since last week, the central parity of RMB against the US dollar has officially entered the "6.3" era after the "three stage jump". In July 2005, before the remittance of US $1 to RMB 8.2765 yuan, the RMB exchange rate rose to 29.3% against the US dollar today, and has appreciated 3.5% since 2011. Last week, the renminbi showed a "rapid march". In August 8th, the central parity of RMB against the US dollar rose from 6.4451 to 6.4305, rising 146 basis points on a single day and 0.23% appreciation, setting the biggest increase in RMB against the US dollar this year. However, this record was quickly refreshed. In August 10th, the central parity of RMB against the US dollar broke 6.43 and 6.42 two integer passes to 6.4167, up 168 basis points from the previous trading day, and the appreciation rate reached 0.26%. In August 11th, the central parity of the RMB against the US dollar rose 6.40 points to 6.3991, rising 176 basis points. On Tuesday, the RMB against the US dollar rose another 25 basis points, rising to 6.3925, reaching a new high for 5 consecutive days, further approaching the 6.39 yuan mark.

　　 The more the dollar, the more nervous.

As for the appreciation of RMB, many foreign trade enterprises describe it as "a knife hanging on the head". "The more dollars you have in your hand, the more nervous you are!" said Miss Zhao Chunling, who made garments export, speaking of her personal experience. "3 cents more than half profit." "

Zhao Chunling said that clothing export business has been in the US dollar for many years, and now the dollar's credit has declined so that she is at a loss. Gross profit was 10% before, and 3% this year is good. "In the past, holding the dollar in your hands is very practical, but now it is quite different. The more dollars you have in your hands, the more nervous you are!" Zhao Chunling said.

The general period of orders for foreign trade enterprises is about 3 months, sometimes even longer. During this period, if the exchange rate changes, the losses will be very heavy. According to Zhao Chunling, she made a $1 million order 3 months ago. When the contract was signed, the exchange rate of US dollar to RMB was 1:6.6. Last week, because of the downgrading of US sovereign credit, the RMB went all the way, and the exchange rate rose to 1:6.3. Compared with 3 months ago, the difference reached 0.3 yuan, and the profit of such an order was only about 3.4 million yuan. Because of exchange rate changes, profits have been cut down.

The financial officers of Sanlin Wan Ye Group Co., Ltd. also felt very much the same. They told reporters that the RMB appreciated slightly against the US dollar in the near future, but there was no sign of RMB against other currencies. This is due to the recent accelerated depreciation of the US dollar. In order to avoid exchange risks and losses, many import and export enterprises take the means of collecting debts early and dragging debts.

By contrast, the US companies have responded more sensitively to the weakness of the US dollar. Last month, the --TotalReturn fund, the flagship fund of the US Pacific Investment Management Company, managed by Bill Gross, the "king of bonds", reduced the holdings of US government related bonds to zero. Bill Gross said the bull market in the US Treasury market has ended for 30 years.

Not only are China's foreign trade enterprises, but also the profits of Chinese banks are being affected by the massive purchases of treasury bonds. Although Chinese banks have been intending to reduce the allocation of US Treasury assets in recent years, there are still bonds held by Bank of China and China Construction Bank.

Fu Lichun, a doctor of the investment department of the Chinese Academy of Social Sciences, said that the downgrading of the US credit rating outlook could be reflected in the financial statements of banks, which could be mainly due to the two aspects of the reduction of the value of treasury bonds assets and the increase in the value of depreciation, resulting in a drop in profits.

"But the Treasury assets held by banks account for only a small part of China's holdings of US Treasury bonds. The biggest impact is foreign exchange reserves. The base of foreign exchange reserves is large, with a change of one percentage point. "Fu Lichun believes that China's banking holdings of U.S. debt assets are not large, mainly in bonds, financial bonds, subordinated debt and other forms of bond.

Liu Shengjun, vice president of the Lujiazui Institute of international finance, said that the amount of treasury bonds held by China is too large, and that the future foreign exchange reserves will shift from US Treasury bonds to corporate equity, commodities and other currencies.

"Such a large volume, the efficiency of the government is relatively low. "Liu Shengjun said that enterprises should be encouraged to carry out market-oriented operations, such as HUAWEI and other enterprises can go overseas for acquisitions or strategic expansion.

　　 Global creditors become "difficult friends"

In the face of the losses caused by the US debt crisis, Chinese enterprises need not be too pessimistic, "because they can find friends all over the world. "A foreign trade personage laughed at this reporter. There is a popular saying at the moment: "the United States is downgraded and global creditors will be caught." Almost every bank, treasury and retirement fund in the world buys treasury bonds, the British Independent newspaper said. Even a slight demotion will affect everyone on the planet. This means Americans are able to buy Korean TV, German cars, Chinese toys, Scotch whisky and other products. The role of the United States as the "end consumer" will gradually fade away, which in turn implies slower growth in other countries.

For the international market, treasury bonds were once seen by investors as the last safe haven in the financial turmoil, but now its creditworthiness is lower than that in Britain, Germany, France and Canada. In August 5th, yields on us 10 - year treasury bonds fell by 2.5%, a record low since October 2010. Once the US debt loses its international status and the US dollar depreciates sharply, China, Russia and other countries with large numbers of US debt will suffer heavy losses. {page_break}

Some experts believe that reducing the US AAA sovereign credit rating may accelerate the depreciation of the US dollar. The share of the US dollar in global reserves is 60.7%. China is the largest overseas holder of US Treasury bonds, holding 1 trillion and 160 billion as of May this year. Some experts point out that China and Japan continue to buy US debt because they lack a safer investment option, and only the US debt market can accommodate China's huge investment.

Zuo Xiaolei, chief economist of galaxy securities, believes that the downgrading of the rating has greatly reduced the actual purchasing power of China's foreign exchange. As the largest holder of US debt, China can ask for the issuance of bonds by the United States. To this end, she suggested that, as the largest holder of bonds, China should ask the us to issue bonds, such as Singapore's growth rate of inflation, to lock in the risk of RMB appreciation and the depreciation of the US dollar. At the same time, the United States is urged to stimulate real economic growth and reduce expenditure. When it does not have enough funds to develop the real economy, it should open its doors to allow foreign direct investment instead of buying Treasury bonds. In addition, China should also look for new currency support points and change the situation of a single link with the US dollar.

　 The world economy is in danger.

It is self-evident that the debt crisis in the United States has dragged down the world economy. The World Bank President Zoelick said in August 13th that compared with the 2008 financial tsunami, the world is in the initial stage of a new "storm". In the past few weeks, the global economy has entered a dangerous situation. Most developed countries have exhausted their fiscal and monetary policies. The European debt crisis is more difficult than the US debt problem, and there is almost no breathing opportunity. It may become the most serious challenge facing the global economy. He called on European policymakers to speed up the handling of the crisis and ease market concerns.

Hong Pingfan, director of the United Nations global economic monitoring center, told reporters in August 11th that there are two risks of the current recession in the US economy, but this is not caused by the S & P's downgrade of the sovereign credit rating of the United States, but should be attributed to the structural problems of the US economy. Overall, the risk of the two recession in the world economy is unlikely.

Speaking of the impact of the downgrade on China, the largest creditor country in the US, Hong Pingfan believes that the impact on China in the short term is not great. In the medium to long term, China should gradually reduce its foreign exchange reserves.

Meanwhile, the US sovereign credit rating was down, and the US stock market and its peripheral stock market plummeted, triggering speculation that the Federal Reserve introduced the third round of quantitative easing (QE3). In mid July, the chairman of the Federal Reserve Bernanke said that if the US economy continues to weaken, the Fed will adopt a new round of monetary easing policy. This prompted the market to associate Lenovo with the third round of quantitative easing. In addition to QE3, Bernanke also gave two other policy options for the Federal Reserve to further weaken the economy: one is to express the current duration of the ultra low interest rate policy; the two is to reduce the reserve requirement ratio of banks and encourage banks to lend.

But Hong Pingfan believes that the possibility of a third round of quantitative easing is unlikely. What the US economy is facing is not a lack of liquidity, but a structural problem. It is Congress and the government that solve the problem of medium and long-term financial sustainability. The third round of quantitative easing policy can not solve these problems. He believes that the Federal Reserve will continue to maintain its total holdings of long-term bonds, as long as possible to extend the "zero interest rate" monetary policy time, and carry out some short-term market operations.