Yuan’s link to US dollar hurting Chinese: ANZ boss Mike Smith

ANZ chief Mike Smith says China’s efforts to lower the yuan is an effort by Beijing to make its economy competitive again.

ANZ chief executive Mike Smith says China’s efforts to lower the yuan is a bid by the Asian powerhouse to make its economy competitive again.

The yuan’s link to the US dollar, which has steadily risen this year, was starting to make things uncomfortable for the Chinese, he said.

“The US dollar has been steadily appreciating in the last few months against almost every currency in the world, and the only one to keep track has been the yuan,” Mr Smith said yesterday.

“That’s a bit uncomfortable for the Chinese. They have seen themselves becoming a bit more uncompetitive, particularly within Asia,” Mr Smith added.

The yuan, on track for its largest two-day loss on record of 3.7 per cent, fell as much as 1.98 per cent yesterday, closing in on the weakest level regulators allow the currency to trade each day.

But investors are betting the central bank will allow more depreciation for now, giving a boost to China’s exports as the pace of economic growth slows down.

Mr Smith warned that the recent round of currency depreciation was “a fairly blunt instrument”, saying: “The sooner China can use interest rates or the currency as shock absorbers for the economy, the better.

“The game is always to become more flexible, but that seems a way off still.

“The effect of an adjustment like this to the yuan is massive, though, and has a global effect — of which they are well aware.”

Mr Smith noted that as global liquidity tightened, especially in the US dollar, “that will put a lot of pressure on emerging market currencies, and China has to find a way of keeping competitive as well”. Beijing, he said, “doesn’t want to move in lock-step with the US dollar”.

Mr Smith said he did not believe there would be a full move towards deregulation of interest rates until nonperforming loans in the banking system were “a little lower than they are now”.

But, he said, “there is little doubt that the yuan will become fully convertible in time — and that is nearer three than five years”.

Mr Smith stressed that ANZ was “still earning good money” from its part-owned Asian investments. And a couple of the partnerships, including in Shanghai, provided options around national regulations, he said.

“But strategically, they don’t fit, and we need to do something about them,” he said.

He conceded that “this is perhaps not the best time to sell ­assets in Asia”, given the China-led slowdown. But he was confident of securing “a strategic price” for them.