China: Strong CNY unlikely to hurt exports - ING

Iris Pang, Economist at ING suggests that they expect improvements in global economic growth to offset the negative impact from the CNY appreciation.

Key Quotes

“We believe strong CNY is unlikely to hurt exports and consistent with consensus we forecast 11% YoY export growth in July (prior: 11.3%). We are more bullish than consensus on imports with 20.3% growth (cons: 18%; prior 17.2%). The CNY appreciated 0.8% in July. In theory, a strong currency is negative for the economy’s export, though we find that the correlation between the two in China has been negligible in the past 12 months (0.046). Global demand is a more important factor to drive China’s export growth and strong consumer confidence in Europe and US is a hopeful sign.”

“Our more optimistic view on imports is based on the same reason. The import subcomponent of the manufacturing PMI index supports our bullish view on manufacturing activities for export orders in coming months. We believe that imports of materials – a large portion of them are mechanical and electric parts – should keep import growth elevated.”

“Looking forward, the question is how likely is it that CNY strength will develop to a level that will eventually hurt exports. We do not think it likely in 2017 and 2018. We think the PBoC’s purpose to strengthen the CNY is to shift market expectation from depreciation to appreciation and stem capital outflows. This does not need faster currency appreciation for a longer period. We forecast only a mild CNY appreciation against the USD to 6.72 by end-2017 (up 3.2%YoY) and to 6.60 by end-2018 (-1.8%YoY).”

“On the political front, in the event the US imposes unilateral trade sanctions on China because it doesn’t think China has been playing a role in reining in North Korea’s missile programme, we expect China to reciprocate immediately. Though we believe that the scale of sanctions by both sides would not hurt overall trade volume materially, particular industries, for example, soybean in the US and parts produced in China that could face intellectual property challenge from the US, may face punitive negative impact.”