's exports are rebounding somewhat better than expected, and bringing with them sudden market expectations for RMB appreciation.
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Quotations of overseas NDF (non-deliverable forwards) show that from Tuesday to Wednesday this week, the price of one-year USD against RMB declined hundreds of basis points. The NDF price of one-year US dollar against RMB was 6.6470 yesterday, the lowest this year.
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Compared to the medial rate of 6.8269 yesterday, the new NDF price means the market sees the RMB/USD rate in one year rising by 2.71%, while at the end of September the NDF price showed RMB appreciation expectations to be about 1.5% for the same period. Prior to this, the RMB NDF prices had remained relatively stable for some time.
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In the spate of economic data released this week, trade numbers for September bettered expectations, with exports amounting to $115.938 billion, down 15.2%, year-on-year, but the smallest drop this year, and imports reaching $103.006 billion, down 3.5%, year-on-year, but breaking the $100 billion line for the first time since last October. After seasonal adjustment, September's month-on-month import and export numbers show the seventh consecutive month of positive growth since March. Analysts deem China's rising foreign trade trend as basically established, and even predict, optimistically, that year-on-year import and export figures will resume positive growth by the end of the year.
　
But contrary to market beliefs, a Bank of China report claims there is no condition in the next year for RMB appreciation against USD. The report stresses the resistance to international pressure for any substantial RMB exchange rate changes. It states that measured by nominal effective exchange rates, RMB is already one of the few appreciating currencies since the onset of the financial crisis. The normal effective RMB exchange rate in August 2009 increased by 10.7% compared to that at the end of 2007.
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But the enthusiasm of international capital for China assets has begun to rise again. By the end of September, the foreign exchange reserves balance totaled $2.2726 trillion, up 19.26%, year-on-year, with September's newly added reserves totaling $61.8 billion, third this year only to $80.6 billion in May and $74.5 billion in April.
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Central bank data show that forex reserves increased by $326.6 billion over the first three quarters, down $50.7 billion, year-on-year. Due to the sluggish external demand and trade downturn, there was a sharp slowdown of capital inflows in the first quarter, and reserves increased by only $7.7 billion, but then jumped by $177.9 billion in the second quarter.
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Forex reserves showed even faster growth in the third quarter, due on the one hand to the recent appreciation of the euro against USD, and thus valuation effects, and on the other hand because of greater international capital inflows due to China's better economic situation and the increasing expectations of RMB appreciation. Loose monetary policy and a variety of asset price bubbles are also attracting hot money back to China. The rising recovery coupled with appreciation expectations make China once again a magnet for global funds.