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Currency War: U.S. Hedge Funds Mount New Attacks on China's Yuan
- melling 11y agoWill this be a replay of Soros "Breaking the Bank of England"? http://dealbook.nytimes.com/2010/06/04/when-soros-decided-to-go-for-the-jugular/?_r=0 http://dealbook.nytimes.com/2010/06/04/when-soros-decided-to...
- Analemma_ 11y agoThey're trying to do the same time thing as Soros did, yes. But even after its recent $300 billion spending spree to defend the yuan, China still has trillions in foreign currency reserves left, orders of magnitude more than the BoE ever did. And they have a cultural imperative against "giving in" to Western capitalist pigs. I really don't think these guys have thought their plan through.
- imron 11y agoExactly this. China also likes shows of strength, and would be more than happy to expend large amounts of cash to bankrupt the people trying this, rather than lose face being broken by them.
- hacknat 11y agoIf they run out of cash they will start to devalue their currency, that's the bet.
- ISL 11y agoIf each Chinese citizen were to sell $1000 worth of yuan back to the Chinese government in return for 1000 USD, a trillion-dollar reserve would be depleted.
- rdancer 11y agoI don't get this. My mental image is all the toddlers of Beijing queuing at the banks, with a wad of banknotes in one hand and a pacifier in the other, unsure which one to give to the teller.
- himlion 11y agoI guess he's using an ill-chosen metaphor to show one trillion isn't that much.
- coliveira 11y agoThat is all the worse for China, and will only serve to increase the size of the bet against the Yuan. When it comes to currencies, there is nothing that can fix the law of supply and demand. The country can spend huge fortunes avoiding the direction of the market, but it will only make things worse when the fall finally comes. I believe Soros and his friends will make a lot of money here.
- sharetea 11y agoNot enough reserve "by 2018 all of China's excess reserves — cash that it has on hand to use immediately — could be gone." http://www.businessinsider.com/chinas-fx-reserves-less-than-estimated-2015-8 http://www.businessinsider.com/chinas-fx-reserves-less-than-...
- deleted 11y ago[deleted]
- jeffwass 11y agoChina's already warned Soros just a few days ago not to short the renminbi. http://www.ft.com/cms/s/0/ebabbebe-c40d-11e5-993a-d18bf6826744.html#axzz3ysHnAorl http://www.ft.com/cms/s/0/ebabbebe-c40d-11e5-993a-d18bf68267... Edit - didn't see that the original WSJ article includes quotes by Soros mentioning his short, and also mentioned China's general warnings against shorts. Though the FT article I linked focuses specifically on Soros, and talks a bit about his history too.
- rdancer 11y agoThat's behind some weird interstitial, so here's a cached version: http://archive.is/xoix6 http://archive.is/xoix6
- Lazare 11y ago> China's already warned Soros just a few days ago not to short the renminbi. Perhaps it makes more sense to Chinese eyes, but that looks very odd to me. If Soros tries and fails, he'll lose a lot of money, but that would seem to be no concern of the Chinese government. So if the Chinese authorities had no worries about the outcome it seems like they'd have no reason to try and warn him off; since they are trying to warn him off, it suggests they're worried. The entire thing sort of comes off as an admission of weakness to me, which I doubt was the intention.
- ktRolster 11y agoSoros famously broke the bank of England: http://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp http://www.investopedia.com/ask/answers/08/george-soros-bank... His name alone is enough to scare Chinese bankers who are worried they can't support their currency.
- mahranch 11y agoChina's economic growth simply isn't sustainable, and that's even if it was true growth. There isn't a top economist alive who believes China's self-reported GDP numbers aren't fudged in one way or another (source: http://www.businessinsider.com/economist-reactions-to-chinas-q3-gdp-results-2015-10?r=UK&IR=T http://www.businessinsider.com/economist-reactions-to-chinas...). Either one of those situations (an economic slowdown, China fudging the numbers, or the more likely situation: a combination of both) makes hedging against the Yuan a pretty solid bet. People and foolish investors think, "Well, China has more than a billion people so it will eventually have a robust and rich economy!" Only, it doesn't work like that (cue the "That's not how this works. That's not how any of this works" lady). Population size is only a tiny facet of a much larger picture. And it's not even a particularly important one, relatively speaking. There are some economists who are now starting to think that having a massive population size may have the opposite effect; it helps you reach a certain point but then your massive size begins to act as an anchor which keeps you from growing further.
- memracom 11y agoLast I looked, China was a big export economy. So the population size is irrelevant. Look elsewhere for indicators of China's future economic growth. And never forget, that big revolutionary wave of iPhones and iPads? It came from China manufacturers. In today's world, if you only look ahead, you will be blindsided from the rear. China is not China any more.
- toomuchtodo 11y agoWhich markets in the world, besides the US, have a stable enough economy for China to rely on their consumption? Europe still has significant headwinds, Canada and the middle east...that's pretty obvious with $30/barrel oil prices, Russia of course not doing terribly great, capital flooding back to the US from Central and South America due to interest rates rising. Keep in mind, a lot of manufacturing is moving back to the US from China with automation being cheeper than (quickly rising) Chinese labor rates [1] [2] [3]. If China cannot stoke internal demand quickly enough (and I assure you, it cannot), it's going to slide into a deep recession. On the bright side, this is going to help cool off London, Toronto, Vancouver, SF/LA, Miami, and central Texas property markets (where a lot of Chinese money was flowing into). [1] http://www.marketwatch.com/story/us-flips-the-script-on-jobs-reshoring-finally-outpaced-offshoring-in-2014-2015-05-01 http://www.marketwatch.com/story/us-flips-the-script-on-jobs... [2] http://news.yahoo.com/manufacturing-moving-china-us-survey-065217238--finance.html http://news.yahoo.com/manufacturing-moving-china-us-survey-0... [3] http://www.economist.com/news/special-report/21569570-growing-number-american-companies-are-moving-their-manufacturing-back-united http://www.economist.com/news/special-report/21569570-growin...
- GreaterFool 11y agoIsn't everyone and their dog trying to devalue their currency these days to boost exports? What's the problem with weak yuan? Sure, iPhones will get even more expensive to buy in China (rather funny since they are made there) but other than that it should be a boon to exports, no?
- ryandamm 11y agoThe main problem is a devalued currency stokes inflation, so consumer costs go up (so do producer costs, but that's offset by better export earnings). China is in the middle of a shift from an export-driven economy to a consumption-driven economy, part of the normal development arc of major economies. But increasing export profits at the expense of households pushes that balance in the wrong direction. For more (much more!) detail on this, I highly suggest the blog 'China Financial Times' by Peking University professor Michael Pettis: mpettis.com. But generally, yes: the world has a savings glut, and devaluing your currency helps export your domestic weakness (some economists call devaluation 'exporting your unemployment'). China is in a rather unique situation though.
- tosseraccount 11y agoDevaluation causes inflation? Not necessarily: http://www.economicshelp.org/macroeconomics/macroessays/does-devaluation-cause-inflation/ http://www.economicshelp.org/macroeconomics/macroessays/does...
- rdlecler1 11y agoIf China starts to devalue their currency, so will their Asian neighbors. They know that a race to the bottom isn't going to be the answer.
- bcg1 11y ago$57 trillion in world debt is something quite unlike a savings glut. And that is just public debt, and it is growing quickly. http://www.economist.com/content/global_debt_clock http://www.economist.com/content/global_debt_clock But in general I agree with your overall statement... everyone talks about China's "ghost cities" as if they are some sort of quixotic or keynesian tomfoolery... but a simpler explanation is simply that China wants to urbanize and grow a middle class as part of the development cycle you mentioned. They probably need a "hard landing" in order to cool off their real estate market and clear out the dead wood of their malinvestment in order to realize that goal.
- ryandamm 11y agoNon WSJ-paywalled article by Reuters: http://www.reuters.com/article/uk-china-forex-hedgefunds-idUSKCN0V50YC http://www.reuters.com/article/uk-china-forex-hedgefunds-idU... Not the same article, FWIW.
- melling 11y agoIsn't that what the 'web' rules under the title is for? We really need an official with HN FAQ: https://h4labs.wordpress.com/2015/09/14/hacker-news-faq-1-how-do-i-read-an-article-behind-a-paywall/ https://h4labs.wordpress.com/2015/09/14/hacker-news-faq-1-ho...
- jsprogrammer 11y agoRelabel 'web' to 'no paywall'?
- vinceguidry 11y agoDid not work for me.
- RA_Fisher 11y agoOne trick is to Google the headline. The article as linked-to from Google won't have a paywall. :)
- incongruity 11y agoI thought that approach always worked, but it looks like it doesn't for this article. What gives? I thought that was a requirement from Google that users see what the googlebot sees?
- RA_Fisher 11y agoHmmm, worked for me.
- aborochoff 11y agoIf you try to hit the link before googling you'll get paywalled. They Probably stick a cookie on you to prevent you from playing this trick (use another browser or private window).
- MCRed 11y agoI don't subscribe to the WSJ so I can't read the OP, but I thought the Yuan was wanting to rise, and that china was slowly letting it revalue. I thought all the economic pressure was aligned that way. Chinese have currency controls so they can't easily sell the yuan to buy other currencies (bitcoin is down for the past couple weeks- the one currency which chinese people love and which doesn't have any controls).
- Lazare 11y agoIn the past, yes. China accumulated large reserves in an effort to keep the renminbi weak (in order to boost exports), but now they've begun spending them again in an effort to strengthen it.
- aembleton 11y agoIn the future, when there is a link to a paywalled article from WSJ on HN, just click on the `web` link. That takes you to a Google search. Then click on the link to the WSJ from Google and you can read the full article.
- PakG1 11y agoWhat I'm about to say is unfortunate but true. China has a big us against the world mentality. Economic "attacks" are often seen as attacks by nation states, not by individuals, and as such, directly reflect foreign policy attitudes. Language like this only adds fuel to the fire. Given the different worldview about how the world works, motivations will always be suspect. Official party mouthpieces will never view such actions as a secular step to simply make money, and many especially uneducated people (who still make up a huge portion of the country) would agree with the mouthpieces on how to understand it. I'm not saying that we should coddle nation states. I am saying that it's unfortunate that I think an economic exercise would result in strained foreign relations at all levels. At the very least, it easily gives the government a scapegoat on which to blame things.
- diego_moita 11y ago> China has a big us against the world mentality. It is a typical pattern on authoritarian mentalities and regimes. You'll find the same in Russia, widely spread among the Latin American left and the supporters of far right Republican candidates (Trump & Cruz). The best to do is to "give them enough rope so that they hang themselves", unfortunately. Authoritarian, centralized and anti free trade regimes end up broken because they suffocate economic diversity, see Argentina, Venezuela and Russia.
- um_ya 11y agoAnd yet, people will continue to praise people like Bernie Sanders. Centralizing government authority does not make the world better.
- deleted 11y ago[deleted]
- knowaveragejoe 11y agoIs that because it is inherently flawed, or because it isn't done correctly?
- sharetea 11y agoPretty easy bet: China Capital Outflows Rise to Estimated $1 Trillion in 2015 http://www.bloomberg.com/news/articles/2016-01-25/china-capital-outflows-climb-to-estimated-1-trillion-in-2015 http://www.bloomberg.com/news/articles/2016-01-25/china-capi... Chinese banks' new bad loans more than doubled in 2015 http://www.reuters.com/article/us-china-banking-npl-idUSKCN0UQ04D20160112 http://www.reuters.com/article/us-china-banking-npl-idUSKCN0... China Crash: $28 Trillion Debt Load Forces Credit Crunch http://www.breitbart.com/national-security/2016/01/05/china-crash-28-trillion-debt-load-forces-credit-crunch/ http://www.breitbart.com/national-security/2016/01/05/china-... Capital flight pushes China to the brink of devaluation http://www.telegraph.co.uk/finance/china-business/12088033/Capital-flight-pushes-China-to-the-brink-of-devaluation.html http://www.telegraph.co.uk/finance/china-business/12088033/C... Mark Hart: The Yuan Devaluation Still Has 50% To Go http://www.valuewalk.com/2016/01/mark-hart-the-yuan-devaluation-still-has-50-to-go/ http://www.valuewalk.com/2016/01/mark-hart-the-yuan-devaluat...
- deleted 11y ago[deleted]
- eru 11y agoI don't get how they can expect to make money off betting against the Hong Kong dollar---I thought the HKD was fully backed by USD?
- rdlecler1 11y agoChina purposely engineered its economic growth to capture the lions share of the reward, which leaves China with the lions share of the risk. Moreover with capital outflows at record highs the only money going back into China is sovereign so this shouldn't create a net flight of capital in the west that would lead to a liquidity crisis. China's been in an economic boom for 37 years and for the most part people don't know what a bad market is. This is healthy for China. It will help shine the light on poor management. The question is whether the CCP will make the necessary changes which are antithetical to their stay-in-power strategy.
- rdlecler1 11y agoInteresting that this comment was downvoted...
- dguido 11y agoI was far more interested in this article when I thought the title was "Concurrency War" :-(
- lossolo 11y agoAnd they thought ghost towns are the answer...
- randomname2 11y agoKyle Bass went all-in, because 'this is much larger than the subprime crisis': "Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar. It is the biggest concentrated wager that the Dallas-based firm has made since its profitable bet years ago against the U.S. housing market. About 85% of Hayman Capital’s portfolio is now invested in trades that are expected to pay off if the yuan and Hong Kong dollar depreciate over the next three years—a bet with billions of dollars on the line, including borrowed money."
- known 11y agohttps://en.wikipedia.org/wiki/Petrocurrency https://en.wikipedia.org/wiki/Petrocurrency is a global Pyramid scheme, resulting in friction between Islam and the West; http://www.zerohedge.com/print/502779 http://www.zerohedge.com/print/502779
- vpribish 11y agozerohedge is garbage (or possibly brilliant parody).
- siscia 11y agoPaywalled ? There is a free version ?
- Animats 11y agoRemember when the US was complaining that the yuan was undervalued to make China's exports more competitive?[1] That was back in 2014. Now it's overvalued. [1] http://yaleglobal.yale.edu/content/renminbi-undervalued-think-again http://yaleglobal.yale.edu/content/renminbi-undervalued-thin...
- jbssm 11y agoIt's quite interesting this news comes out when USD is taking an heavy hit against HKD for the last days: https://finance.yahoo.com/q?s=usdhkd=X https://finance.yahoo.com/q?s=usdhkd=X Depending in the leverage they used for betting against the HKD these people might be at a serious risk of loosing everything they put there in case the trend doesn't suddenly change or if they don't get enough money from other sources to hold their leverage.
- mark_l_watson 11y agoIt will be interesting to see what happens with China and Russian economies. I think their best chance is major cooperation with other countries via economic development zones (Silk Road, etc.) and trade. It seems like they are betting on a multi-polar world. The problem for Russia and China is the the USA will probably maintain its dominate military role for another decade or so. That said, I think that the world economic situation is so complex and chaotic that who knows. The USA might have a black swan economic event (my bet would be on a digital credit meltdown, no ATMs, run on cash, etc.) that would affect everything.
- sharetea 11y agoAny reason, you, who lives in US and making a living off American companies, would want an unlikely catastrophic event to destroy US, and hoping authoritarian billionnaire dictators in China and Russia to gain even more military power on the world?
- mark_l_watson 11y agoI don't want that at all! I am mostly optimistic about the future, but I also think it is a good idea to make plans for unlikely, but disruptive events.