Hao Zhou, analyst at Commerzbank, points out that according to the various media reports, China and US at the end of their two day trade talks remain far apart, in particular on structural issues.
Key Quotes
“Some media earlier reported that the US is considering extending the tariff deadline by another 60 days. However, the US officials said that “no decision” had been made on extending the tariff truce beyond March 1.”
“All told, it looks like a deal can hardly be reached this month, and any extension only means that the uncertainty whether a comprehensive deal can or cannot be reached continues for longer. Without any new optimistic signals from the trade talk, CNY weakened somewhat.”
“Moreover, CNY could get another hit as preliminary data compiled by the State Administration of Foreign Exchange (SAFE) showed today that China’s current account surplus narrowed substantially in 2018 to USD49.1bn for the whole year. According to our calculation, this means that China’s current account surplus was only 0.39% of GDP as of 2018, the lowest since the record began in 1998.”
“While China still runs a decent goods surplus, largely against the US, unfortunately, the widening service balance deficit has largely eroded the surplus from merchandized trade.”
“All told, the current account dynamics will likely become a drag for the CNY exchange rates over the foreseeable future. This also indicates that China will not loosen the grips on the capital account activities any time soon. In other words, the capital control measure will remain in place.”
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