Macroeconomics
CHINA EMBRACES RUSSIAN RUBLE
Separately, China has embraced another currency: The Russian ruble.
In the
border city of Suifenhe in the Heilongjian Province, China has recognized the ruble and is willing to allow it to circulate freely. We note that Russians are allowed to visit Suifenhe without visas.
China is unlikely to do this unilaterally. Russia should be expected to shortly announce allowing the renminbi to trade freely in some border city. The reciprocity should, over time, generate a true market based bilateral exchange rate.
Although Nixon-Kissinger are credited with playing the China-card to squeeze the Soviet Union during the Cold War, there is arguably greater scope for cooperation between China and Russia than the other BRICs. China needs oil and gas and Russia has plenty. With Europe’s slow growth and aging population and fundamental antagonism,Russia has interest in developing an Asian market for its energy products. Bilateral trade is forecast to reach $100 bln in the next couple of years.
On a different front, the Japanese
government is on a bit of a diplomatic offensive as it seeks to bolster support
a
FX
a resource rich neighbor of China. Specifically
state-
owned bank (Japanese Bank for
International
Cooperation, JBIC)) will guarantee the bonds sold by the Development Bank of Mongolia, to which Moody’s assigns junk status (B1).
CHINESE BOND YIELDS SURGE
Lastly, we note that
privately Chinese officials appear to be increasingly concerned about the surge in bond yields since mid- year.
China’s 10-year
bond yield has risen about 120 bp since early July to almost 4.8% at the end of November. Like Japanese government bonds, though for different reasons, the vast majority of Chinese bonds are
owned
China strengthened its economic ties with Russia by allowing the ruble to circulate freely in Suifenhe, Heilongjiang province
in its confrontation with China. It not only is seeking tighter military ties with the US and Philippines, but it also is offering to guarantee Samurai bonds sold by Mongolia,
domestic entities.
Domestic insurers, pension funds and commercial banks alone 75% of
hold debt. We suggest
the government’s three
forces that have driven Chinese bond yields higher: increased supply,
the rise in global yields and the rise in headline inflation from 2.1% in May to 3.2% in Oct.
Marc Chandler FX TRADER MAGAZINE January - March 2014 61 about by
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