Davos: Chinese regulator denies devaluation of the RMB is being used to boost exports

Fears that Beijing is following a stealth devaluation policy to boost its exports have helped convulse financial markets this year

Chinese Central Leading Group for Financial and Economic's Fang Xinghai (R) gestures next to International Monetary Fund (IMF) Managing Director Christine Lagarde during a session at the World Economic Forum (WEF) annual meeting in Davos, on January 21, 2016. (FABRICE COFFRINI/AFP/Getty Images)

A senior Chinese financial regulator yesterday sought to reassure Davos delegates and global markets that the Beijing authorities are not seeking to pep up their slowing economy by devaluating the Renminbi (RMB).

Fears that Beijing is following a stealth devaluation policy to boost its exports have helped convulse financial markets this year and fed concerns that the economic situation in China is worse than reflected in the official statistics.

But Fang Xinghai, the vice chair of the Chinese Securities Regulatory Commission sought to scotch this view speaking at a World Economic Forum panel.

“There really is no basis for China to depreciate the currency” he said, pointing to the still large current account surplus being run by the country despite its falling exports.

“A depreciation is not in the interests of China’s rebalancing; a too deep currency fall would not be good for [domestic] consumption.”

It was a surprise 2 per cent depreciation of the RMB versus the dollar, the largest daily move in more than two decades, last August that helped set off the “Black Monday” panic in Chinese equities and world stock markets. Another yuan depreciation earlier this month precipitated further stock sales around the world.

Mr Fang, a graduate of Stanford University and former adviser to Prime Minister Li Keqiang who was appointed to the regulator last October, stressed that Beijing was no longer targeting the dollar but a basket of currencies, making the RMB’s moves against the Greenback much less relevant. He also hit back against the idea that China’s currency was not stable enough to be part of the IMF’s official basket of currencies, to which it was officially admitted last year. “That worry is completely unnecessary” he said.

Mr Fang did, however, admit that the communications of the Beijing authorities on its currency strategy could improve. “Our system is not structured in a way to communicate seamlessly with the markets” he said, adding “you bet we can learn”.

However, Ray Dalio, head of the giant Bridgewater Associates hedge fund, who was on the same Davos panel as Mr Fang , sounded a skeptical note about these assurances. “Most market participants think China will continue to devalue the currency further” he said.

Mr Fang said that while there would be volatility in Chinese currency and equities markets Western investors should not panic. “The [Beijing government] response to any financial problem is very swift. It always comes down to leadership. Where you have steady, strong leadership we can deal with it” he said.

Chinese exports fell for a fifth month in succession in November, declining at a pace of 6.8 per cent on a year earlier. However, imports have been dropping even more rapidly, meaning China continues to run a sizeable current account surplus.