Forex Marketing in China

China, officially the PRC, is a country in East Asia. It is the world's most populous country, with a population of more than 1.4 billion. China spans five topographical areas with time and borders 14 different countries, the second most of each country in the world after Russia.

China was first rated to be unified country back in 221 BC, ruled by the Qin dynasty. No, big, fat pandas weren‘t kung fu masters back then; at least we don’t‘ think so. Since that time, we’ve seen many dynasties rise and fall until the Pples Rpblic of China was establish in 1945.

Although it was Recently, that China take shape to be a legal world power. It boasts world-class cities, Olympic gold medalists, and honeyed soft sum. Not only is it the birthplace of Yao Ming, it even became the third country to send a man to space. From sports to space travel, to economic, China is slowly crawling its way up the leader boards!

China: Facts, Figures, and Features

• Neighbors: Korea, Mongolia, India, Japan, Russia

• Size: 3,705,407 square miles

• Population: 1,350,695,000

• Density: 373 per square mile

• Capital City: Beijing (population: 11,716,000)

• Head of Government: Xi Jinping

• Currency: Chinese Renminbi / Yuan (CNY)

• Main Imports: petroleum, copper, iron, steel, machinery, plastics, medical equipment, organic chemicals

• Main Exports: rice, apparel, clothing, office machines, electronic goods, machinery, steel, Yao Ming, Jackie Chan, Apple iPads, Cherry cars

• Imports Partners: South Korea 9.4%, Japan 8.3%, Taiwan 8%, United States 7.8%, Australia 5%, Germany 4.8%

• Exports Partners: Hong Kong 17.4%, United States 16.7%, Japan 6.8%, South Korea 4.1%

• Time Zone: GMT+8, GMT+7, GMT +6, GMT +5, GMT+4

• Website: https://www.gov.cn/english/

Economic Overview

Since China began to open up and reform its economy in 1978, GDP growth has averaged almost 10 percent a year, and more than 800 million people have been removed out of poverty. There have been notable progress in access to health, education, and other services over the same period.

In late 2009, China overtook Japan to be the world‘s second-largest economy, and today, China’s GDP stands at a massive $14 trillion USD and growing. Even though it wasn‘t always this way . For the longest time, China’s economy was secluded from the rest of the world. It was only during the formalization of the modern government, the Peoples Rpbic of China, that China started opening its door to the rest of the world.

China hit a humungous growth spurt in the 1990s and 2000s, while it posted ridiculous double-digit growth. This put its booming economy at the forefront of emerging market growth. Interestingly, the growth has been spurred on by the agriculture and industrial industries, which noticed for more than 60% of the total GDP.

Export trade has in addition played a great factor, having the undervalued yuan helping make Chinese goods more attractive in international markets. Also over the past year though, there have been fears that the Chinese economy may overheat.

To counter this, the Chinese government has introduced several financial and fiscal policies to ease the transition to more sustainable growth levels.

Monetary & Fiscal Policy

Monetary policy concerns the actions of a central bank or other regulatory approved adopt to manage and regulate currency and credit in order to achieve certain macroeconomic goals. The financial policy of China aims to keep the value of the RMB stable and contribute to economic growth. The Peoples Bank of China (PBoC), which is located in Beijing, is in charge of financial policies of China.

Apart from controlling interest rates and reserve ratio requirements, the PBoC is tasked with regulating financial institutions in mainland China. Now heres a little piece of trivia for you: Did you know that the PBoC purchase is now the most financial properties in between all the public financial institutions in existence？ Currently it is holding over $1.3 TRILLION USD worth of Treasury bills, and not to mention all the other bonds from other countries that are on its balance sheet!

But looking at how China managed to trump most country when in comes to economic performance , shouldnt be too surprising. Additional element of interesting about the PBoC is that its interest rates used to be divisible by 9 instead of 25 a few years back. This was because the Chinese based it's tax style of the abacus, which was set in multiples of 9. Can you imagine reading about a 0.18% hike in benchmark rates？

Even so Recently, the PBoC decided to let go of this traditional practice and adopt the convention of hiking or affordable rates by 0.25% step up. In details, the PBoC is pretty notorious for making aggressive changes in the profits ratio depending on how the Chinese economy is faring.

A part from the tax ratio, the PBoC has the ability to modify the reserve ratio (RRR) for banks in its financial policy arsenal. You see, the RRR refers to the amount of money that Chinese banks are expected to hold in their vaults. By varying the ratio, the PBoC is able to control how much money is in movement and keep inflation in the boundary of its target levels.

Getting to Know the CNY

The renminbi is the official currency of the PBoC and one of the world's reserve currencies, ranking to be the eighth most traded currency in the world started on April 2019.

Chinese money, in addition comes by two names: the Yuan (CNY) and the people's renminbi (RMB). The difference is subtle: while renminbi is the official currency of China where it used to be intermediate of trade, the yuan is the unit of Ledger of the country's economic and financial system. Although China is in the midst of reforming its trade ratio law, the yuan still continue to be pegged to the U.S. dollar.

This means that if the U.S. dollar rises or falls in value, the yuan follows accordingly. As such, CNY isnt one of the commonly traded currencies in the forex market. One problem with this peg is that it has caused tension between China and the United States, which has come close to naming China a currency manipulator.

Because the yuan is undervalued, haters claim that it gives China an unfair trade advantage and has been the main driver of Chinese growth. To China‘s credit, though, it has been slowly weakens the yuan’s peg in recent years. They‘ve done so by slowly introducing CNY-denominated bonds in Hong Kong. Word on the street is that big financial players can’t wait to start changing their money to yuans and investing in CNY- the denominated currency.

Important Economic Indicators for the CNY

• GDP – This Data uses shows the Chinas economic report card because it reflects how much their economy goes broad or contracted for the period. This is clearly reported on a quarterly basis compared to the same quarter in the previous Era.

• CPI – The PBoC keeps a close eye on the Chinese CPI report because it reflects how much price levels have changed over a particular period of time. If the annual CPI reading exceeds or falls below the Chinese governments target levels, the PBoC could wield its financial policy tools in its next tax decision.

• Trade Balance – A great chunk of Chinas economy is cnsist of international trade, which means that the trade balance is clearly considered a leading indicator of growth.

• PBoC Interest Rate Decision – As we mentioned earlier, PBoC is notorious for making aggressive financial policy changes whenever they feel that the Chinese economy is overheating or if it needs more stimulus.

Trading the Chinese Economic Reports

Although yuan isn‘t a commonly traded currency, that doesn’t mean you can‘t give rise to any pips more off those Chinese economic releases! Because China’s economy is very broad, its economic events will in all likelihood affect all those countries that they are closely associated with. One of these is Australia. China is Australias largest trading partner, with the two countries which are trading almost a 100B dollars worth of products each year. With that, Chinese economic data releases tend to impact the Australian dollar the most out of the major currency pairs.

Strong economic data from China clearly indicates that the Chinese demand for Australian commodities could increase while weak Chinese data could hint at a downturn in trade with Australia. And this is for sure, since China is now the world‘s second-largest economy next to Uncle Sam, the status of its economic has a great effect on risk review. This means that a slowdown in China could reduce traders’ appetite for risk and higher-yielding of funds Because worry about the potential impact of this slump on the global economy.

Alternatively, an economic boom in China could be positive for risk when participants of the markets see this just a sign of further growth for the global economy.

Trade Tactics

Probably when you watch the Australian dollar, then you should definitely mark your calendars for Chinese economic releases and PBoC statements. Generally, we can say better than expected economic figures from China lead to an AUD/USD or AUD/JPY rally while weaker than expected results mostly alert an Aussie selloff. The conclusion of this are a little more harder these are based on winning market review.