The monsoon rains that have inundated several central and southern provinces this month have brought the most severe flooding that Fujian, Jiangxi, Hunan and Guizhou have suffered in half a century. Official figures put the death toll in June at at least 235 with a further 119 unaccounted for. At least 379 people have died as a result of flooding so far this year, the deadliest toll since 1998 when 3,600 died as a result of the rains.
On Monday, at least 107 people were buried by a rain-triggered landslide in Guizhou. In all more than 29 million people have been affected, with one in 10 those having to be evacuated from their homes. The economic cost is put at upwards of 82 billion yuan ($12 billion). Emergency relief efforts and fortification of riverbanks continues, as does the torrential rain with more in the forecast.
The value of the yuan was sidestepped in the communique wrapping up the weekend summit of G20 leaders. China insisted that it wasn’t mentioned, so it wasn’t. The closest the communique got was some lilly-livered language asserting that market-oriented foreign exchange rates reflecting fundamentals help sustain global stability. We love mom and apple pie, too. While the subject was certainly discussed, the main split at the meeting was between the U.S. and Europe over the question of stimulus versus deficit reduction. We don’t belittle the matter. Getting the timing right country by country for scaling back on stimulus spending to promote recovery and embarking on what will be painful fiscal consolidation is central to the sustainability of the next cycle of global growth. But as the global financial crisis passes the G20’s limits as a global economic policy coordinator are being shown up more and more. And that may ease pressure on Beijing to revalue the currency on anything but its own timetable.
Filed under Economy, Markets
This Bystander will be convinced that the supposed groundswell of factory workers’ discontent with their pay and conditions is a significant force once the strikes we have seen in recent weeks that have hit car production at Honda and now Toyota plants spread beyond foreign-owned factories to domestically-owned ones. One of the purposes of the news blackout on these strikes is to forestall that happening through copycatting. There is no sign that the authorities will tolerate widespread illegal industrial action or the circumvention of government-sanctioned unions at Chinese-owned factories.
On Tuesday, for the first time since it announced on Saturday that it would be restoring its managed exchange rate regime, the People’s Bank of China has raised the centre point of the yuan’s official trading band. Our excitement barely knows any bounds.
Central bank Q&A on the exchange-rate regime.
The death toll from the rains inundating the south has risen to at least 175, Xinhua reports, with a further 107 unaccounted for. Approaching 2 million people have been evacuated and relief and rescue efforts are struggling to keep up with rivers in Fujian, Jiangxi and Hunan swelling and more rains in the forecast, though the rainstorm alert has been lowered from orange to blue, the lowest level. The flooding and landslides caused by the torrential rain have washed away roads, rail and power lines, and affected more than 25 million people, causing 29.6 billion yuan ($4.3 billion) in estimated economic losses, according to the Civil Affairs Ministry.
First day of China’s newly re-instituted managed exchange rate regime was very much like the last day of the dollar peg it replaces. The People’s Bank of China left the yuan-dollar rate unchanged Monday–though we can’t say we were surprised. Days two through four, ahead of the G20 meeting next weekend, may bring some cosmetic appreciation in the Chinese currency. Thereafter we continue to expect the yuan to rise only slightly if at all against the dollar with the central bank continuing to be unbending in its flexibility.
We have long argued that China would allow its currency to appreciate, as much of the rest of the world is demanding and which in the long-term is in its own economic interest, but that it would do so at a time of its own choosing. That indeed has been Beijing’s public position regardless of the volume of the rhetoric coming out of Washington and Brussels. Today’s unexpected announcement by the People’s Central Bank of China that it will return to its pre-financial crisis managed floating exchange rate regime introduced in 2005 to replace the yuan’s peg to the dollar but suspended in July 2008 following the onset of the global financial crisis, is more style than substance, though there is some substance there.
No one should think, though, that Beijing is letting the currency float freely. The central bank is explicit that there will be no ‘large-scale appreciation of the yuan” and that the previously used narrow bands within which the currency can move will be re-instituted. That means that any appreciation in the exchange rate is likely to be modest and gradual. And while the announcement comes ahead of the G20 summit in Toronto, with the intention, we assume, of taking some of the sting out of the issue there, there is no indication of the timetable by which it will be implemented. We don’t expect the central bank to be in much of a rush. Nor do we think that all China’s economic policymakers are yet convinced of the solidity of global economic recovery that allowing the yuan to appreciate would imply and which the central bank cites as a justification for the policy switch.
There is also an opaque reference in the central bank’s statement that “continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies”. While no one has known exactly what the composition of the reference basket was, beyond being overwhelmingly U.S. dollars, given the changing nature of China’s trade over the past couple of years, the new mix could have a material effect on the politically sensitive U.S. dollar-yuan rate that would mean that rate not moving much, and the yuan-euro rate moving more, a combination that wouldn’t appease the increasingly bellicose critics of China in the U.S. Congress. If the euro remains weak, the yuan could conceivably depreciate against the dollar, which would really put the cat among the pigeons.
The evacuation of Chinese nationals from Kyrgyzstan has been completed with a ninth flight bringing out the last of 1,299 people airlifted home, Xinhua reports. The evacuation started three days ago after ethnic violence broke out between Kyrgyz and Uzbeks, which has left at least 187 dead and the country facing what the Red Cross is calling “an immense” humanitarian crisis.
Many of those evacuated were businessmen and their families and construction workers in Osh, the southern Kyrgyzstan town close to the Uzbekistan border, and who come from Xinjiang. A foreign ministry official said the “vast majority” of Chinese nationals in Osh had been evacuated though some Chinese were remaining in Kyrgyzstan.
When ethnic violence broke out between Kyrgyz and Uzbeks 20 years ago, the old Soviet Union sent in troops to restore order in short order. Russia is unlikely to play a similarly firm role this time round, though it will be part of any international or CSTO peacekeeping force that goes into Kyrgyzstan. The current provisional government that ousted that of Kurmanbek Bakiyev in April clearly has no control of the country. While the geopolitics are complicated by Russia’s traditional influence and the presence of a U.S. military base, there is a high probability that the interim government could collapse and Kyrgyzstan, or at least its southern part, fall into ungovernable chaos.
The most troubled area is in southwestern Kyrgyzstan where Kyrgyzstan, Uzbekistan and Tajikistan meet in the Ferghana Valley but, to the east, China shares a long border with southeastern Kyrgyztsan and will be regarding the prospect of a lawless state on one side of it with great concern, especially as its own side of it has Muslim minority issues of its own with Xinjiang’s Uighurs.
The chaos also underlines an aspect of China’s policy of using its money to extend its influence across the stans (and by extension curtailing that of Russia and the U.S.) by developing commercial and economic links and providing ample dollops of patronage for local politicians. It is a policy that depends on there being stability.
More heavy rain is expected in in the already inundated southern provinces, raising fears of more loss of life from mudslides and flash flooding particularly in Fujian, Hunan and Guangxi. At least 35 people have died and 49 are missing following this week’s seasonal downpours. In Sichuan on Tuesday, 23 people died when a landslide cascaded down a mountain into dormitory tents on a construction site. Across western and southern China, more than 100,000 have been evacuated from their homes, Xinhua reports. In all, more than 150 people have died so far as a result of this year’s rainy season.
Update: More than 2.5 million people across six southern provinces have been affected by this week’s rain and 238,000 had been evacuated from their homes, the Ministry of Civil Affairs said on Thursday, adding that more than 33,000 homes had collapsed or been damaged. The known death toll has risen to 46.