The world’s second-largest economy is expected to grow at less than 8 per cent in 2012 – far below the average double-digit gains enjoyed in recent years. Other than a stabilizing real-estate market, China’s economic data has offered few solid reasons for bullish optimism and widespread fears of a “hard landing” for the Chinese economy persist.
So why the rise?
Some are pointing to the upcoming U.S. presidential election, and suggest the People’s Bank of China (PBOC) is intervening to goose the currency, commonly known as the yuan, to help President Barack Obama’s re-election efforts. Mr. Obama is regarded as less hawkish towards China while Republican candidate Mitt Romney has vowed, if elected, to brand the country as a currency manipulator.
Na Liu, the president and founder of CNC Asset Management Ltd., believes there are other considerations at work, namely an attempt ratchet up investor faith in the Chinese economy.
“Besides political considerations and the QE effects, I think the PBOC also wishes to shore up investors’ confidence. A stronger spot exchange rate for the yuan helps diminish the depreciation expectations for the Chinese currency and underpins investor confidence for the Chinese economy.
And in turn, it reduces people’s desire to hoard the U.S. dollars and makes people more willing to convert dollars into yuan. This mechanism helps increase the local money supply and boost domestic economic activities,” Mr. Liu said in an interview.
Read more: Theories abound on China’s rising yuan - The Globe and Mail
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