It was just last week that details of the first meeting between President Donald Trump and his Chinese counterpart, Xi Jinping, were announced, but China has already been angling to position itself positively ahead of the encounter set for this week in Florida.
With Trump having repeatedly suggested on the campaign trail that China manipulated its currency to the downside, experts are saying the East Asian giant has done its best to prevent the yuan from falling further against the greenback by putting in measures to stem capital flight.
In fact, the renminbi has actually gained against the dollar in 2017 — even as it has fallen against a basket of currencies.
Shen Jianguang, chief economist at Mizuho Securities Asia said keeping the currency stable was a key move by China to present itself more positively, as was opening up the domestic bond market and the fund management sector to foreign companies.
And then there was the move in March this year, when the People’s Bank of China (PBOC) raised the interest it charges for loans to banks by 10 basis points.
While many reported the move was a bid to stave off capital outflows and pre-empt CNY selling pressure after U.S. rates were hiked, there may be more than meets the eye, said Tim Condon, head of Asia research at ING Financial Markets.
“Ahead of the Trump-Xi summit favorable optics may have been a consideration,” he said in a Monday note.
He added that PBOC’s daily fix is a more important determinant of CNY moves rather than interest rates.
Indeed, “framing” China’s pitch will be key, added Mizuho, where analysts are expecting a conciliatory tone at the meeting — even amid Trump’s regular harping on China’s large trade surplus with the U.S.
“We think that the compromise could take the form of Chinese investments in the U.S. creating jobs — this is already underway and more about framing,” Mizuho said in a note Tuesday.
“What’s more, China could open more sectors to U.S. firms and will rehash openness to high-tech U.S. imports as well as services trade as quid pro quo,” the note added.
