China EconTalk: RMB continues to be driven by monetary policies after a ‘lucky’ year

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Editor’s note: Yang Yuting, Chief Economist for Australia & New Zealand Bank, Greater China, shared his insights with CGTN. The economist said that the Chinese economy will enter a rather stable condition while Chinese currency will continue to be driven by the monetary policies after a “lucky” year. Risk in property sector should also be paid attention to.

The value of the Chinese currency renminbi (RMB), or yuan, picked up in 2017. It was valued at about 6.9 against the US dollar in January, but climbed to around 6.5 in December. Yang Yuting, Chief Economist for Australia & New Zealand Bank, Greater China, described the yuan's rate last year as "lucky."

At the beginning of 2017, the US dollar was very strong, and RMB attempted to test the level of 7.0. “But suddenly all expectations of the US dollar have changed. And the US dollar went against the expectation and fell to a very low level – 91.01 – at the end of August,” Yang explains.

Reporter Wang Lihuan speaks to Yang Yuting, Chief Economist for Australia & New Zealand Bank, Greater China. /ICS Photo

Where is RMB going this year? Yang predicts that “Chinese currency will continue to be driven by the monetary policies. Stances of ECB versus FED will continue to affect euro/US dollar. In the end, that would be reflected in RMB exchange rate.”

As for the Chinese economy, Yang thinks highly of country’s performance in 2017 – “pretty much in line, even above the targeted growth rate of China.”

Look to this year, Yang said that Chinese economy will enter a rather stable condition, forecasting a 6.5-percent GDP growth rate. “Inflation will pick up but is still below three percent target, probably 2.6 percent for the full year,” Yang said.

For risks, the chief economist warned that property sector should be paid attention to.

“From 2018, lots of central banks start to normalize their monetary policies, talking about interest rate hikes, balance sheet shrinking and the tailoring (by the ECB), so all these will point to the increasing of funding costs. And these costs will eventually pass through to the property sector,” Yang explained.

/‍VCG Photo

But he expected no risk for capital outflows. On the contrary, he said that more capital inflows could be expected.

“One of the key events we are tracking now is whether the Chinese bond market will be included in major indexes in the world,” Yang explained.

“If the Chinese bond is included in asset or the benchmark of global index, lots of investors will need to follow and increase the weight of Chinese assets in their portfolio. And that creates a massive amount of capital inflow to China. Our estimate said that roughly 250 billion US dollar flow will be created if major global bond index include Chinese bond in their part of portfolio,” he added.

(ICS’s Wang Lihuan also contributed to the story.)