Update: Ringgit falls for fifth day on lower oil, China growth concern

SEP 8, 20155:53 PM

[KUALA LUMPUR] Malaysia's ringgit fell for a fifth day, the longest run of losses in a month, as an overnight decline in energy prices and an economic slowdown in China damped demand for the oil-exporting nation's assets.

Brent crude slumped 4 per cent on Monday, extending a decline that has contributed to a 19 per cent depreciation in the ringgit this year in Asia's worst performance. China, Malaysia's biggest overseas market, reported on Tuesday its exports contracted for a second month in August, while imports shrank the most since May.

"There are uncertainties over China's growth, declining oil prices, US Fed rate normalization and global risk aversion," said Leong Sook Mei, Southeast Asia head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Singapore. "It's a given that, in this kind of environment, Asian currencies will probably be very weak." The ringgit declined 0.2 per cent to 4.3385 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The currency, which has lost 4 per cent in the past five days, earlier fell as much as 1 per cent to 4.3730, the lowest since January 1998.

The ringgit's drop was due to expectations of a depreciation in the yuan after China reported a decline in foreign-exchange reserves on Monday, according to Dushyant Padmanabhan, a strategist with Nomura Holdings Inc. in Singapore.

A majority of more than 150 market participants surveyed by Moody's Investors Service expect the ringgit and oil prices to stabilize, with 44 per cent saying they expect the currency to trade between 4 and 4.50 a dollar, according to a statement from the rating company issued on Tuesday.

Global funds reduced holdings of Malaysian government bonds by 4.3 per cent to 166.1 billion ringgit (S$54.5 billion) in August from July, the lowest level in five months, according to central bank data.

Sovereign bonds retreated, with the 10-year yield rising two basis points to 4.26 per cent, according to prices from Bursa Malaysia.

BLOOMBERG

    
 

Euro-area economy grew more than estimated in second quarter

SEP 8, 20155:22 PM

[FRANKFURT] The euro-area economy grew more than initially reported in the second quarter, driven by a surge in exports and consumer spending.

Gross domestic product rose 0.4 per cent in the three months through June after expanding a revised 0.5 per cent in the first quarter, the European Union's statistics office in Luxembourg said Tuesday. Household consumption increased 0.4 per cent. Eurostat had reported second-quarter growth of 0.3 per cent on Aug 14.

The European Central Bank predicted last week that the region's recovery will continue, albeit at a weaker pace as an economic slowdown in emerging markets including China weighs on global trade. Policy makers revised down their growth and inflation forecasts for the 19-nation bloc through 2017, and President Mario Draghi committed to expand stimulus if needed.

Government spending increased 0.3 per cent in the three months through June, while investment fell 0.5 per cent after a 1.4 per cent surge at the start of the year, according to the report. Household consumption contributed 0.2 percentage point to GDP, and net trade added 0.3 percentage point.

A gauge of factory and services activity rose to a four- year high in August in a sign that the euro area's recovery is proceeding at pace. Unemployment in the region declined to 10.9 per cent in July, the lowest since early 2012.

BLOOMBERG

    
 

Communiqué G20 Finance Ministers and Central Bank Governors Meeting 4-5 September 2015, Ankara, Turkey

Communiqué G20 Finance Ministers and Central Bank Governors Meeting 4-5 September 2015, Ankara, Turkey

1. We met in Ankara to review ongoing economic developments, our respective growth prospects, and recent volatility in financial markets and its underlying economic conditions. We welcome the strengthening economic activity in some economies, but global growth falls short of our expectations. We have pledged to take decisive action to keep the economic recovery on track and we are confident the global economic recovery will gain speed. We will continue to monitor developments, assess spillovers and address emerging risks as needed to foster confidence and financial stability.

2. We reaffirm the role of macroeconomic and structural policies to support our efforts to achieve strong, sustainable and balanced growth. Monetary policies will continue to support economic activity consistent with central banks’ mandates, but monetary policy alone cannot lead to balanced growth. We note that in line with the improving economic outlook, monetary policy tightening is more likely in some advanced economies. We reiterate our commitment to move toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments. We will refrain from competitive devaluations, and resist all forms of protectionism. We will implement fiscal policies flexibly to take into account near-term economic conditions, so as to support growth and job creation, while putting debt as a share of GDP on a sustainable path. To this end, we will also continue to consider the composition of our budget expenditures and revenues to support productivity, inclusiveness and growth.

3. We will carefully calibrate and clearly communicate our actions, especially against the backdrop of major monetary and other policy decisions, to minimize negative spillovers, mitigate uncertainty and promote transparency.

 4. The need to boost actual and potential output growth is a key challenge for the global economy. We remain committed to timely and effective implementation of our growth strategies that include measures to support demand and lift potential growth. As we implement these strategies, we will take steps to promote greater inclusiveness, including to reduce income inequality. This year we developed a robust framework to monitor the implementation of these measures and prepared detailed implementation schedules. Based on this, we will present our first accountability report on progress against our growth strategy commitments at the Antalya Summit. Preliminary analysis by the international organizations shows that we are making progress towards our commitments and that more effort is needed for implementation. We are also reviewing our growth strategies, including through peer review, to make sure that they remain consistent with our collective growth ambition.

5. Boosting investment is a top priority for us. To this end, we have prepared country-specific investment strategies that present concrete actions in order to improve the investment ecosystem, foster efficient infrastructure investment and support financing opportunities for SMEs. We welcome the progress note by the OECD that provides a preliminary review of our investment strategies and contributes to knowledge sharing. We look forward to further qualitative and quantitative assessments of our strategies and based on these assessments, we will finalize them for the Antalya Summit. We also welcome the recommendations and assessment frameworks developed by the IMF, WBG, and OECD to help countries strengthen their public investment management processes and enhance the quality of investment. We also reiterate the importance of mobilizing multilateral and national development bank resources and technical expertise. In this respect, we welcome the progress in the Multilateral Development Banks’ (MDBs) action plan for balance sheet optimization.

2 6. In order to encourage private sector engagement, we acknowledge the consolidation of best practices in public private partnership (PPP) models, which can address commonly-encountered challenges. We welcome the WBG PPP Guidelines and the OECD/WBG PPP Project Checklist which provide guidance on international best practices for preparation and implementation of PPPs. Moreover, we also endorse the business plan of the Global Infrastructure Hub, which will address data gaps, lower barriers to investment and move engagement with the private sector beyond business as usual. We look forward to regular updates on its operations.

 7. In recognition of major financing needs for long term investments, we also focused on examining possible alternative capital market instruments. As such, we take note of the policy recommendations by the IMF and WBG on systematically integrating the features of asset-based financing practices into global finance. To help ensure a strong corporate and public governance framework that will promote private investment, we also endorse the G20/OECD Principles on Corporate Governance. We recognize the potential to facilitate financial intermediation for SMEs including by improving systems for credit reporting, lending against movable collateral, and insolvency reforms. We welcome the progress on the G20/OECD High Level Principles on SME financing and the establishment of the private sector-led World SME Forum, a new initiative to serve as a global body to drive the contributions of SMEs to growth and employment.

 8. We remain deeply disappointed with the continued delay in progressing the 2010 IMF Quota and Governance Reforms. We reaffirm that their earliest implementation is essential for the credibility, legitimacy and effectiveness of the Fund and remains our highest priority. We strongly urge the United States to ratify the 2010 reforms as soon as possible. We reaffirm our commitment to maintaining a strong, well-resourced and quota-based IMF. In reference to our call in Istanbul, we look forward to progress on the SDR Basket Review in November. We welcome the progress achieved on the implementation of strengthened collective action and pari passu clauses in international sovereign bond contracts, and stress the importance of accelerating their implementation. Regarding debt sustainability, we acknowledge the existing initiatives aimed at improving sustainable financing practices, as stressed in the Addis Ababa Action Agenda. We also take note of the Paris Forum initiative, which contributes to further the inclusiveness by fostering dialogue between sovereign debtors and creditors.

9. We reaffirm our resolve to finalize the remaining core elements of the global financial reform agenda this year. We welcome the work by the FSB, BIS and BCBS on rigorous and comprehensive quantitative impact assessments on a total-loss-absorbing-capacity standard (TLAC) for global systemically important banks and by the BCBS and IOSCO on criteria for identifying simple, transparent and comparable securitizations. We look forward to the finalization of the common international standard on the TLAC for global systemically important banks and robust higher loss absorbency requirements for global systemically important insurers by the Antalya Summit, and completion of the previously agreed work on the extension of the contractual recognition of temporary stays on early termination rights for OTC derivatives contracts to include other instruments and firms, excessive variability in risk-weighted asset calculations for bank capital ratios and implementation of the G20 shadow banking roadmap. We also look forward to progress this year on the agreed work plans regarding central counterparties’ resilience, recovery planning and resolvability, misconduct risk and withdrawal from correspondent banking and remittances services. We will work to address legal barriers to the reporting of OTC derivatives contracts to trade repositories and to the cross-border access of authorities to trade repository data, as well as to improve the usability of that data. We continue to closely monitor financial stability challenges, including those associated with asset management activities and will ensure that related risks are fully addressed. We look forward to the FSB’s first annual report on the implementation and the effects of all reforms, including any material unintended consequences, particularly for EMDEs. We recognize potential risks to financial stability arising from liability structure distortions in corporate balance sheets and ask the FSB, in 3 coordination with other international organizations, to continue to explore any systemic risks and consider policy options.

 10. The fight against terrorism is a major priority for all of our countries and thus, we reiterate our resolve to tackle its financing channels. We reaffirm our commitment to deepen our cooperation concerning the exchange of information and freezing of terrorist assets, in particular to facilitate cross-border freezing requests, and we will work on modalities to promote further transparency of financial flows. Criminalization of terrorist financing and the existence of robust targeted financial sanctions regimes related to terrorism and terrorist financing are fundamental requirements to actively curb terrorist financial flows.

11. In line with our commitments to reach to a globally fair and modern international tax system, we are in the final phase of delivering the G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan. The final package of all 15 action items is expected by October, and at our next meeting in Lima, we will review this package to submit it to our Leaders in Antalya. The effectiveness of the project will be determined by its widespread and consistent implementation. We will continue to work on an equal footing as we monitor the implementation of the BEPS project outcomes at the global level, in particular, the exchange of information on cross-border tax rulings. We call on the OECD to prepare a framework by early 2016 with the involvement of interested non-G20 countries and jurisdictions, particularly developing economies, on an equal footing. We welcome the efforts by the IMF, WBG, UN and OECD to provide appropriate technical assistance to interested developing economies in tackling the domestic resource mobilization challenges they face, including from BEPS. We continue to work to enhance the transparency of our tax systems, and reaffirm our previously agreed timelines for the implementation of automatic exchange of information. We reiterate our commitment to implement the G20 High-Level Principles on Beneficial Ownership Transparency and look forward to further progress on country implementation. We support the efforts made for strengthening non-G20 economies’ engagement in the international tax area and welcome the decisions taken under the Addis Ababa Action Agenda on international cooperation on tax matters.

12. We reaffirm our commitment to promote an enabling global economic environment for developing countries as they pursue their sustainable development agendas, including by strengthening our policy dialogue. We welcome the positive outcomes of the Addis Ababa Conference on Financing for Development (FFD) and in support of them, we aim to scale up our technical assistance efforts to help developing countries build necessary institutional capacity, particularly in the areas specified in the Addis Ababa Action Agenda. We also look forward to a successful outcome of the UN Summit in New York for the adoption of the 2030 Agenda for Sustainable Development.

13. To support the climate change agenda of 2015, we welcome the Climate Finance Study Group (CFSG) report, take note of the inventory on climate funds developed by the OECD, and the toolkit developed by the OECD and the GEF to enhance access to adaptation finance by the low income and developing countries, especially those that are particularly vulnerable to the adverse effects of climate change. We recognize developed countries’ ongoing efforts and call on them to continue to scale up climate finance in line with their commitments. We are working together to reach a positive and balanced outcome at the 21st Conference of Parties of the UNFCCC (COP 21). Based on the outcomes and towards the objectives of the COP21, CFSG will continue its work in 2016 by following the principles, provisions and objectives of the UNFCCC. 4 Annex G20 Finance Ministers and Central Bank Governors Meeting 4-5 September 2015, Ankara, Turkey

 Reports Received
 We welcome the delivery of the following reports ahead of the G20 Finance Ministers and Central Bank Governors meeting, September 2015:

 IMF Surveillance Note, September 2015 Fiscal Policy and Growth: Why, What and How, IMF/OECD Note, September 2015 G20/OECD Draft Report on G20 Investment Strategies, August 2015 OECD’s Progress Note on G20 Country-Specific Investment Strategies, September 2015 IMF Note on Public Investment Efficiency in the G20, August 2015 Note on Action Plan for MDB Balance Sheet Optimization, August 2015 Policy Framework for Investment, OECD’s Report to G20 Finance Ministers and Central Bank Governors, September 2015 Summary Report on Effective Approaches to Support Implementation of the G20/OECD High-Level Principles on Long-term Investment Financing by Institutional Investors, OECD’s Report to G20 Finance Ministers and Central Bank Governors, September 2015 Regulation of Insurance Company and Pension Fund Investment, OECD’s Report to G20 Finance Ministers and Central Bank Governors, September 2015 Mapping of Instruments and Incentives for Infrastructure Financing: A Taxonomy, OECD’s Report to G20 Finance Ministers and Central Bank Governors, September 2015 Note on G20/OECD Singapore High-Level Roundtable on Institutional Investors and Long Term Investment, September 2015 Note on G20 – WBG Singapore Workshop on Project Prioritization and Preparation, August 2015 IMF/WBG Note on Integrating Islamic Finance into Global Finance, August 2015 Leveraging Islamic Finance for SMEs, Joint WB-IsDB G20 Islamic Finance Policy Paper, August 2015 Opportunities and Constraints of Market-Based Financing for SMEs, OECD’s Report to G20 Finance Ministers and Central bank Governors, September 2015 G20/OECD High Level Principles on SME Financing, OECD Progress Report to G20 Finance Ministers and Central Bank Governors, September 2015 G20/OECD Principles of Corporate Governance, OECD Report to G20 Finance Ministers and Central Bank Governors, September 2015 Growth Companies, Access to Capital Markets and Corporate Governance, OECD Report to G20 Finance Ministers and Central Bank Governors, September 2015 Capital Market Instruments to Mobilize Institutional Investors to Infrastructure and SME Financing in Emerging Market Economies, WBG/IMF/OECD Report to G20 Finance Ministers and Central Bank Governors, August 2015 Global Infrastructure Hub Business Plan 2015-16, Global Infrastructure Hub, September 2015 World SME Forum Business Plan 2015-19, World SME Forum, August 2015 5 Towards a Framework for the Governance of Public Infrastructure, OECD Report to G20 Finance Ministers and Central Bank Governors, September 2015 PPP Guidelines: World Bank Group Infrastructure Deliverables, (Infrastructure Prioritization Toolkit; Report on Recommended PPP Contractual Provisions; Framework for Disclosure for PPP Projects; Partnering to Build a Better World: MDBs’ Common Approaches to Supporting Infrastructure Development) WBG Reports to G20 Finance Ministers and Central Bank Governors, August 2015 WBG/OECD Project Checklist for PPPs, August 2015 Addressing Data Gaps in Long-Term Investment: An Agenda for Research, OECD’s Report to G20 Finance Ministers and Central Bank Governors, September 2015 Overcoming Barriers to International Investment in Clean Energy, OECD Report to G20 Finance Ministers and Central Bank Governors, September 2015 Official Development Finance for Infrastructure/Support by Multilateral and Bilateral Development Partners, OECD Report to G20 Finance Ministers and Central Bank Governors, September 2015 PPP Days 2015 Summary, EBRD Report to G20 Finance Ministers and Central Bank Governors, August 2015 FSB’s Ninth Progress Report on the Implementation of OTC Derivatives Reforms, July 2015 Comprehensive Progress Report on the CCP Work Plan, the FSB, BCBS, CPMI and IOSCO, September 2015 Report on Corporate Funding Structures and Incentives, the FSB, IMF, BIS, OECD, WBG, and IOSCO, August 2015 Sixth Progress Report on the Implementation of the G20 Data Gaps Initiative, the IMF and FSB, September 2015 Work on Foreign Currency Exposures, the IMF, BIS and FSB, August 2015 Update by the IMF and the OECD on Cooperation on Macro-prudential and Capital Flow Management Measures, September 2015 OECD Secretary-General Report to G20 Finance Ministers with its annexes (Reports on “Possible Tougher Incentives for the countries that fail to comply with the Global Forum standards on exchange of information on request” and “SMEs and Taxation”), September 2015 IMF Note on Inclusion of Enhanced Contractual Provisions in International Sovereign Bond Contracts Briefing for G20 Meeting, September 2015 Toolkit to Enhance Access to Adaptation Finance for Developing Countries that are Vulnerable to the Adverse Effects of Climate Change Including LIDCs, SIDs and African States, OECD in Collaboration with the GEF, August 2015 Climate Funds Inventory, OECD, August 2015 G20 Climate Finance Study Group Annual Report 2015 Issues for Further Action We look forward to the assessment by the IMF of the global financial safety net architecture by early 2016. We look forward to the finalization of the Joint Action Plan on SME Financing by the Investment and Infrastructure Working Group and the G20 Global Partnership for Financial Inclusion. 6 Supporting our endeavor to integrate the asset-based financing models into global finance, we ask the BCBS to collaborate with the relevant stakeholders to develop a proposal on options for modalities to promote a structured consultation mechanism. Acknowledging the role of closing information gaps in financial stability, we welcome the significant progress through the Data Gaps Initiative and endorse the proposed recommendations for its second phase (DGI-2), and call on the IMF and FSB to report back to us on the progress of DGI-2 in the second half of 2016. We expect the IMF, FSB and BIS to take forward the work on data gaps on foreign currency exposures via the steps outlined in their report as part of the second phase of the Data Gaps Initiative. In its report to be delivered in November 2015, we expect the FATF to inform us on the progress made on criminalizing terrorist financing and applying targeted financial sanctions related to terrorism and terrorist financing, and proposals to strengthen all counter-terrorism financing tools. We call on the IMF, in consultation with other relevant parties, to continue to promote and monitor the progress on the implementation of the strengthened collective action and pari passu clauses, and to further explore market-based ways to speed up incorporation of such clauses to the outstanding stock of debt. We underline the need to strengthen information-sharing and transparency to ensure that debt sustainability assessments are based on comprehensive, objective and reliable data and call on the IMF and World Bank to address this issue as part of the forthcoming review of their joint Debt Sustainability Framework for Low-Income Countries

America's small businesses are optimistic

• Reuters

• 3h
• 175

Thomson ReutersPrices are seen on replica Statues of Liberty figures in a shop window in New York City

WASHINGTON (Reuters) - U.S. small business confidence rose modestly in August, suggesting the economy continued to grow at a steady clip halfway through the third quarter.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index gained half a point to 95.9 last month.

The NFIB said the survey of 656 businesses had not been impacted much by the recent turmoil in global financial markets, which was triggered by concerns over slowing economic growth in China.

"Most of the interviews were completed before the big slide," the NFIB said in a statement.

Five of the index's 10 components increased last month, while three declined and two were unchanged.

The survey's labor market gauges improved further last month, supporting the view that August's job growth slowdown was an aberration. The U.S. Labor Department reported on Friday that non-farm payrolls increased 173,000 last month, the smallest gain in five months.

Small business owners were slightly optimistic about sales, but did not believe it was a good time to expand. Owners were pessimistic about business conditions over the next six months and were noncommittal regarding capital and inventory investment.

The survey pointed to benign inflation pressures in the near term. Fourteen percent of small business owners reported reducing their average selling prices in the past three months, up one point from July. A net 15 percent planned to raise prices, down 2 points from July.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Read the original article on Reuters. Copyright 2015. Follow Reuters on Twitter

China just gave its economic forecast at G20

• Reuters

• Sep. 6, 2015, 6:44 AM
• 5,454
 
• 1

REUTERS/Kim Kyung-HoonChina's Finance Minister Lou Jiwei

BEIJING (Reuters) - China's financial markets are expected to remain stable and the renminbi is not on course for a long-term devaluation, while fiscal spending will grow faster than expected this year, the country's top financial officials told the G20.

Finance Minister Lou Jiwei said that central government spending will rise 10 percent this year, more than the 7 percent growth budgeted at the start of the year, according to a statement late Saturday on the People's Bank of China website. China will raise dividend payments from designated state-owned enterprises to make up for any shortfalls.

China is headed for its slowest economic expansion in 25 years in 2015 and mainland markets have slumped 40 percent since mid-June, sending global financial markets skittering.

Ailing Chinese shares dragged down Hong Kong stocks to their lowest close in two years on Wednesday. China's financial markets were closed on Thursday and Friday to commemorate the 70th anniversary of the end of World War Two.

China's overall GDP growth will remain around 7 percent, as predicted earlier in the year, and the new economic normal may last for four to five years, Lou said. The government will not particularly care about quarterly economic fluctuations and maintain steady macro-economic policy, he added.

China can no longer rely on policy supports to achieve 9-10 percent growth, as it may already take several years to digest excess industrial capacity and inventories, he said.

It will go through "labor pains" in the next five years as it aims to complete main structural reforms by 2020, Lou added.

The quality of growth, however, is already improving with 7 million jobs created in the first half of the year, consumption overtaking investment in contributing to economic growth and the balance of payments becoming more even, he said.

AP ImagesZhou Xiaochuan, governor of the People's Bank of China

Also at the G20, People's Bank of China Governor Zhou Xiaochuan reviewed the massive run-up and crash of Chinese equities, acknowledging its global impact in August.

Financial leaders from the Group of 20 top economies met in Turkey on Friday and Saturday.

China's efforts, including the central bank channeling liquidity into the market, averted a precipitous slide and systemic risks, Zhou said. Leverage has decreased noticeably and the real economy was not significantly effected.

The yuan-US dollar exchange rate is relatively stable, the stock market is already roughly where it should be and financial markets are expected to be stable, he said.

Earlier G20 officials said the Chinese devaluation of the yuan in August and the stock market plunge were all part of a difficult path to a more liberal economy.

(Reporting by Jake Spring; Editing by Himani Sarkar)

Read the original article on Reuters. Copyright 2015. Follow Reuters on Twitter.

TREASURY OFFICIAL: G-20 members think we need to 'double down' against competitive devaluation

• Reuters and Erin Fuchs

• Sep. 5, 2015, 10:17 AM
• 2,953
 
• 3

REUTERS/Mikhail KireevChina's Vice Finance Minister Zhu Guangyao at a briefing at the G20 Summit in Strelna, near St. Petersburg, September 5, 2013.

There is a shared belief among the members of the Group of 20 leading economies in the need to "double down" against competitive currency devaluation and avoid it in both policy and language, a senior US Treasury official said on Saturday.

Speaking to reporters on the sidelines of the G20 meeting of central bankers and finance ministers in the Turkish capital of Ankara, the official also said that China appears to have learned about the importance of transparency in the communication of monetary policy from its latest market turmoil. 

“There is a clear understanding that competitive devaluation presents a threat that everyone has to be on guard against, both in their policies and their words,” the senior official said, according to The Wall Street Journal.

China devalued its currency last month, in a sign that it was trying to make its exports more competitive amid a foundering economy, as Business Insider Australia reported at the time.

Other countries — including Vietnam and Kazakhstan — followed suit and devalued their own currencies, as The Journal noted. The Journal wrote that Japan's subsequent suggestion that it might devalue its own currency inflamed fears that "China’s depreciation might have sparked a dangerous round of global depreciations."

The senior Treasury official's statements Saturday seemed to be a reaction to those fears. 

(Reuters Reporting by David Dolan; Editing by Nick Tattersall)

China is falling into a vicious circle as it burns through cash reserves faster than ever before

• Ben Moshinsky
 

• Sep. 7, 2015, 6:45 AM
• 26,305
 
• 33

REUTERS/Arnd WiegmannThe Boeoegg, a snowman made of wadding and filled with firecrackers, burns atop a bonfire in the Sechselaeuten square in Zurich April 20, 2009.

China is spending billions propping up its struggling currency and as a result its foreign currency reserves fell by a record amount last month.

China spent $93.9 billion in August, reducing its cash pile to $3.56 trillion. This is almost double the drop in July, when $50 billion was spent.

The People's Bank of China is spending all this cash on propping up its currency, the yuan, which has been suffering since China devalued it against the dollar.

China's central bank is selling the dollars it holds and buying yuan in a bid to boost the price by juicing the supply and demand ratios.

But the problem for China is that as it burns through its reserves at a faster pace, it signals to the market that the currency has further to fall — the currency needs propping up, meaning the demand is artificial.

That's speeding up a capital flight from the country. A falling currency makes it more expensive for people to shift their assets overseas and if it looks like the yuan is going to keep falling, people make a run for the exits.

And as money flees the country, China is forced to spend more to prop up the currency, which causes more angst for investors — it's a vicious circle. 

Tom Orlick, Bloomberg's chief Asia economist, said in an email this morning (emphasis ours): 

The hope for the PBOC [People's Bank of China], we believe, is that extreme selling pressure on the yuan subsides and they can allow a moderate depreciation to restore export competitiveness. The fear is that today’s data will reinforce the market view that the only way for the yuan to go is down, and further accelerate capital outflows.

The chart below from Societe Generale shows just how much money has leaked out of China in the last year — around $150 billion:Societe Generale

All of this has a big effect on the US economy too, because of how much American debt China holds. To buy yuan and sell dollar it looks like China is selling some of its US Treasury holdings. 

This could push up the yield on US debt and make it more expensive for the US, the world's largest economy, to borrow. 

Here's Orlick again:

There are also global implications, as news reports and the U.S. Treasury data suggest China is selling down its Treasury holdings. There’s no sign that’s the doomsday scenario of a fire sale. But clearly a sustained shift from buying to selling from China would add pressure for Treasury yields to rise.

US bonds are major benchmark for debt worldwide because they're considered the safest assets in the world. If interest rates go up in US debt, they're likely to go up everywhere. Low US interest rates have been calming the markets since the last crisis in 2008.

China gave the markets a shock in August by devaluing its currency, but the amount China is spending to prop up the yuan shows it might've fallen more than the policymakers thought.

Barclays had a good note on this last week, saying:

In the first couple of days after the adjustment to the fixing mechanism was announced the CNY weakened sharply, which created significant pressure in global markets. It is unlikely that this was the expected reaction in China, as since then the authorities have intervened to prevent any repeat.

Here's what that looks like in context of previous changes:Barclays

There are lots of different ways this could go, but they all point to China's reserves getting a hammering. It just depends how quickly.

Given today's figures we're currently somewhere between Barclays' "Scenario 2" and "Scenario 3". In other words, it's not quite as bad as the worst case scenario from Barclays, but not far off:

China's trade data is horrible again

• David Scutt, Business Insider Australia
 

• 8h
• 1,184

REUTERS/StringerBystanders look at a car that has partially fallen into a small sinkhole along a street in Beijing, China, September 6, 2015.

Chinese trade figures for August have just been released, and they’re weak yet again, particularly for imports.

Imports fell by 13.8% from a year earlier, well below the 8.1% contraction of July and expectations for a drop of 8.2%.

Imports from Australia tumbled by 29.6%, marginally shading a 21.7% decline from the European Union, while those from the US slipped by a smaller 5.9%.

On the other side of the ledger, exports fell by 5.5%, an improvement on the 8.3% decline of July and expectations for a contraction of 6.0%.

Those to the European union slid by 7.5% while those to the US declined by 1.0%, having fallen 1.3% previously.

With the decline in imports outpacing that for exports, the trade surplus ballooned to the second highest level on record, rising to $60.236 billion from $43.03 billion in July. It was significantly above expectations for an increase to $48.2 billion.

Business Insider Australia

While falling commodity prices, the Tianjin port explosion and temporary closures before last week’s Victory Day parade likely contributed to the sharp fall in imports in US dollar terms, the scale of the decline will do little to appease concerns over the health of China’s economy.

One look at commodity import volumes certainly paints an ugly picture. Crude imports fell to 26.59 million tonnes, down from 30.71 million tonnes in July, while iron ore and coal slipped by 13.9% and 17.7% to 74.12 million tonnes and 17.49 million tonnes respectively.

The question many will be asking themselves will be whether the substantial decline was due to temporary factors, or the start of a sinister new trend?

While that question will likely be answered in the months ahead, the data today will do little to dispel the increasingly held view that Chinese economic growth has decelerated in recent months. 

Later this week, China’s government will release a plethora of economic figures including CPI, M2 monetary growth, industrial production, retail sales and urban fixed-asset investment.

Read the original article on Business Insider Australia. Copyright 2015.

SEE ALSO: DEUTSCHE BANK: We examined 200 years of data and concluded stocks, bonds, and housing are at 'peak valuation'

SEE ALSO: China is falling into a vicious circle as it burns through cash reserves faster than ever before

More: China China Stock Market Hang Seng Business Insider Australia 

China just made another move to halt the slide in equities

• Reuters

• 17h
• 5,815
 
• 6

AP Photo/Kin CheungA Chinese girl holds national flag as she and other fans watch the World Athletics Championships at the Bird's Nest stadium in Beijing, Saturday, Aug. 22, 2015.

HONG KONG/BEIJING (Reuters) - China said on Monday it would remove personal income tax on dividends for shareholders who hold stocks for more than a year, in a move aimed at encouraging longer-term investment in equities as opposed to short-term speculation.

The government also said it would halve the tax on dividends for those holding shares between a month and a year and that the changes would come into effect on Tuesday.

Full tax payment will be required for shareholders who hold shares for less than a month, the finance ministry said in a statement on its website.

The measures are the latest in a volley of policy moves Beijing hopes will halt a slide in Chinese equities that has rattled global investors and raised fresh doubts about the strength of the world's second-biggest economy.

Hours earlier, the Shanghai and Shenzhen Stock Exchanges and the China Financial Futures Exchange proposed introducing a "circuit breaker" on one of the country's benchmark stock indexes to stabilize the market, the Shanghai exchange said in a statement on its website.

Thomson ReutersPeople look at the exchange rate at a Moneychanger displaying posters of U.S. dollars, Chinese Yuan and Malaysia Ringgit in Singapore

The exchange is proposing that a 5 percent rise or fall in the CSI300 index <.CSI300> from the previous day's close would trigger a 30-minute suspension of all the country's equity indexes if the move occurs before 2:30 p.m.

After that time, a 5 percent move would prompt a suspension until the market close.

Moves of 7 percent from the previous close would trigger a trade suspension for the rest of the day.

The exchanges are seeking comment from market participants on the proposals before Sept. 21.

There is no guarantee that Beijing will adopt the proposals, but, if enacted, they could prove a disincentive to investors who want to buy stocks, by restricting the market's potential to rise as well as to fall.

MIXED REACTION

"It prevents a degree of very unhealthy volatility from impacting the market and at the same time allows investors to trade their conviction but not to the point where it becomes dysfunctional and counterproductive," said Peter Kenny, chief market strategist at Clearpool Group in New York.

Thomson ReutersChinese President Xi Jinping applauds during the opening ceremony of the 15th IAAF World Championships at the National Stadium in Beijing

"This could actually help global markets quite a bit just in terms of investor psychology."

But the reaction among others was skeptical.

"What's the point? It merely delays the pace of the market fall," said Liu Ligang, China economist at ANZ in Hong Kong.

"If you resume market trading again (after the 30 minute suspension), the market will continue to fall. Why should they (even) have an equity market? This policy-making style is pushing China backwards to a planned economy."

Other market participants expressed doubts that volatility could be tamped down, as the myriad of measures taken by policymakers to reduce the wild swings in the stock market have been ineffective thus far.

"They tried to encourage long-term investment and also to curb volatility, but I don’t think that can be totally under control at this point," said Tracy Chen, a portfolio manager at Legg Mason unit Brandywine Global in Philadelphia.

"The market’s confidence in Chinese policymakers is a little bit shaky right now."

The CSI300 index comprises the largest listed companies in Shanghai and Shenzhen.

(Reporting by Meg Shen and Twinnie Siu in Hong Kong and Dominique Patton, Meng Meng and Nicholas Heath in Beijing, Chuck Mikolajczak in New York; Editing by Mike Collett-White and Cynthia Osterman)

Read the original article on Reuters. Copyright 2015. Follow Reuters on Twitter.

MORE FROM REUTERS:

• UN says close to 8,000 killed in east Ukraine
• Pakistani forces believe they have killed top Baluch rebel leader
• AutoNation says it won’t sell cars that need safety repairs
• NHC sees 40 percent chance of cyclone off Bermuda
• Futures rise on hopes of additional Chinese stimulus

More: Reuters China