Stronger Chinese Yuan Forecasts

Economists and analysts are now projecting Chinese yuan is likely to remain stable [or strengthen] for the next couple of years — the median of analysts’ end-2018 forecasts is 6.8, and for end-2019 it is 6.7.

Last week the Chinese yuan changed hands at 6.5151 against the U.S. dollar. The yuan was trading at 6.45 last Friday. Currently it is 6.58.

The yuan has strengthened much faster than expected, and it’s even bucked the trend. While other Asian currencies have been falling in the face of rising political tensions between the U.S. and North Korea, the Chinese yuan has actually continued appreciating. Experts say the central bank has succeeded in demonstrating it can withstand downward pressure on the currency by tightening capital controls and with foreign exchange intervention.

Capital Economics issued on Aug. 31 its latest adjusted forecast, with expectations that 6.60 yuan would trade for a U.S. dollar by the end of the year, 6.40 in 2018, and 6.20 in 2019.

Macquarie also sees the yuan appreciating further, forecasting it to hit 6.40 yuan against the dollar over the next 12 months.

At the start of 2017, Bjarke Roed-Frederiksen, a senior economist at Sweden’s Svenska Handelsbanken AB was predicting the currency would weaken to 7.9 per dollar at the end of next year. Now he’s forecasting 6.4.

Chinese Academy of Social Sciences, a government think tank in Beijing, analyzed several years worth of government balance sheets and concluded that the state’s massive assets can offset the debt threat. CASS calculates in a new report that government assets stood at about 125.4 trillion yuan ($19 trillion) in 2015, or about 1.8 times GDP. Holdings include fixed assets such as buildings and cars, resources like land and oilfields, and cold hard cash in government deposits, the social security fund, and financial institutions.

China’s gross domestic product (GDP) was 74,412.7 billion yuan in 2016.
China’s GDP for 2017 will be about 81 trillion yuan. (USD 12.65 trillion if exchange is 6.4) IMF projects US at 19.4 trillion.
China’s GDP for 2018 will be about 90 trillion yuan. (USD 14.5 trillion if exchange is 6.2). IMF projects US at 20.3 trillion.
China’s GDP for 2019 will be about 100 trillion yuan. (USD 16.7 trillion if exchange is 6.0). IMF projects US at 21.2 trillion.

If the trend were to follow, then China would pass the USA on a nominal GDP basis in 2022. The Exchange would need to go to 5.6 or 5.7.