On Tuesday, the People’s Daily laughed at George Soros.
Literally.
On the heels of comments Soros made in Davos last week about China’s “hard landing,” the Party mouthpiece ran an "op-ed" that carried the title “Declaring War On China’s Currency? Ha, Ha.”
It’s not clear that George Soros intends to “declare war” on the RMB. However, he did say he was betting against Asian currencies and because his reputation precedes him when it comes to breaking central banks, the Chinese apparently wanted to get out ahead of what the PBoC assumes will be an attack on the yuan. “Given how people know Soros and what he did in 1992 and during the 1997-1998 Asian crisis, he’s too important to ignore, so China felt that they had to counter any negative comments,” Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking told Bloomberg.“They have to reassure local savers and show them a willingness that the government is looking after them and their savings.”
“Soros’s war on the renminbi and the Hong Kong dollar cannot possibly succeed — about this there can be no doubt,” the People’s Daily continued, before calling the aging billionaire a “crocodile” and a “predator.”
As we noted yesterday, “China won't be able to arrest Soros and beat a confession out of him like Beijing is fond of doing to others suspected of launching ‘malicious’ short attacks, but the brash commentary does indicate that Chinese authorities are becoming increasingly sensitive to suggestions that a steeper RMB devaluation is a foregone conclusion.”
Of course a steeper RMB depreciation is a foregone conclusion because as we’ve outlined on several occasions, the days of China sitting idly by while the dollar peg saps the country’s export competitiveness are long gone and Beijing now seems determined not only to participate in the ongoing global currency wars, but in fact to win.
But China is keen on orchestrating a controlled depreciation (despite the fact that getting it over with at once might be the better option if Beijing wants to limit capital flight) which means keeping hold of the narrative and using the captive Chinese media to fight back against those who, like the “crocodile” Soros, would seek to employ “malicious” tactics to spark a panic.
Against this backdrop we get another hilarious “commentary” piece out of the Politburo on Wednesday, this time via Xinhua. The piece, presented in its entirety below, explains why Soros and the ubiquitous “short-sellers” “make claims that run counter to reality.”
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From Xinhua
China has ample reasons to stay confident in face of speculators. Far from some speculators' claims, China is not a source of trouble but an important engine of global economic growth with its growing demand and investment.
Here are the numbers. China registered a growth rate of 6.9 percent last year amid a sluggish global economy, contributing more than 25 percent of global economic growth.
Chinese tourists spent 1.2 trillion yuan (182.4 billion U.S. dollars) overseas, while the country's investors pumped 735 billion yuan (111.7 billion dollars) into other economies.
Speculators claimed they see a hard landing for China. It is true that the growth of the world's second largest economy is experiencing a relative slowdown compared with the blistering growth of the past decade. But as we know, decision makers have now opted for a slower pace in order to make the country's growth more sustainable in the future.
Moreover, a growth rate of 6.9 percent is the envy of most other economies. China's added economic output last year was more than the GDP of Sweden or Argentina.
George Soros, who recently claimed he saw a hard landing for China at the World Economic Forum in Davos, Switzerland, has made the same prediction several times in the past.
It's an exaggeration to say that China increases global deflationary risks. Imagine the world without the demand and growth from China, global economic growth would have been much worse, possibly at higher risk of deflation.
The world economy is having trouble because of the sluggish growth and slow recovery of many economies. International investor Jim Rogers said recently that the monetary policies of the U.S. Federal Reserve and the expansion of government debt are the original sources of the problems.
Meanwhile, China's economic transformation is currently underway.
Figures show that foreign investment in China's service sector saw robust growth in 2016, and the country attracted 136 billion U.S. dollars of foreign direct investment.
Thanks to government policies encouraging innovation and the streamlining of procedures, entrepreneurship is flourishing and bringing fundamental change to Chinese society. In the first half of 2015, the number of newly registered businesses exceeded 10,000 on a daily basis.
Employment creation is strong too, which, coupled with a sound growth rate and strong capital formation and innovation, means that the world's second largest economy is unlikely to experience a hard landing.
So why do speculators make claims that run counter to reality? Analysts said it is because either the short-sellers haven't done their homework or that they are intentionally trying to create panic to snap profits.
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Yes, "analysts" say Soros hasn't done his "homework" and just wants to "create panic" on the way to "snapping profits." Xinhua also says Soros' views may indicate he's "partially" blind.
Unfortunately for the Chinese, Soros probably has "done his homework" and his claims do not "run counter to reality." The "reality" here is that China's economy is decelerating and in all likelihood, the yuan will continue to move lower as the currency shoulders the burden of the hard landing.
This won't be the first time Soros squares off against Asian officials over flagging currencies. As Bloomberg also points out, former Malaysian PM Mahathir Mohamad (known as the founding father of modern Malaysia) once called the billionaire a "moron" for helping to trigger the ringgit's collapse.
So strap in, because the PBoC is in for a bumpy ride in 2016 as everyone from domestic depositors to nefarious, predatory, "speculators" bets on continued yuan weakness.
We close with a quote from Michael Every, head of financial markets research at Rabobank in Hong Kong:
“They can write as many op-eds as they want, but two plus two doesn’t make five."