The Real Story Behind China’s Currency Manipulation

The Real Story Behind China’s Currency Manipulation

By Steve Sjuggerud – Stanberry Digest

An interview with Steve Sjuggerud and Peter and Tama Churchouse

Steve Sjuggerud: Let’s move on to the currency. Trump says China is a currency manipulator. Can you comment on that?

Peter Churchouse: Yeah, the currency manipulation thing is a complete farce.

Steve: Are his advisers going to tell him this?

Peter: I have not heard his advisers actually mention this. When you talk about a currency manipulator, you are implying that country or that person is manipulating the currency downward. It’s devaluing the currency. An actual fact of the last seven or eight years is the Chinese currency has gone UP against the U.S. dollar by something in the region of 20%.

Steve: What about compared with other major currencies?

Peter: It has gone up tremendously against the sterling, and even more so against the euro. If you want to call China a manipulator, the country has manipulated the currency to the upside not to the downside.

The issue at the moment is the demand for capital flows is starting to move to the outward side – meaning there is more demand for capital to leave China than to go into China.

In the old days (a couple years ago), there was a lot of demand to put money into China. That put upward pressure on the currency. Today, more and more people are looking to take their capital and buy investments all around the world. So there is a genuine downward pressure on the currency.

The Chinese government has spent about $500 billion to try and PREVENT the currency from going down. So China is doing exactly the opposite of what the Trump administration is accusing it of.

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Steve: Our subscribers might think that if Trump is making all of these threats, China is less attractive as an investment. But I think Americans don’t fully appreciate how drastically China has changed… Can you comment a bit on this big change?

Peter: Yes. Basically, the Chinese economy is moving to be much more of a consumer-driven economy. It has been historically export driven. In fact, the “domestic” side of the economy actually surpassed the export side of the economy about three or four years ago.

Tama is probably more qualified than me to talk on the tech side about consumer trends, but those businesses are hugely domestically focused. The growth of online shopping in China, for example, is growing at 35% to 40% per annum. These are all domestically driven operations and businesses. So increasingly, the country is becoming much more domestic-consumption focused.

Tama Churchouse: It’s pretty interesting on the tech side. I remember when you guys came and visited. I was talking to a couple of the Stansberry guys and brought up the subject of Xiaomi… Nobody had heard of Xiaomi.

Xiaomi is China’s Apple… It produces high-end phones, TVs, GoPro replacements, you name it. It’s a $50 billion to $70 billion company. Xiaomi produces domestically high-end stuff, but nobody had heard of it.

Why? Because it is a domestic-demand-driven company. It is not an exporter. And that’s just a classic example of these kind of companies. This one is private. But as Peter says, China is turning into a domestic-demand-driven consumer economy and it has got the largest emerging middle class in the world. That is going to drive these stocks over the next decade.

Peter: Per-capita GDP in China now is close to US$10,000. And you have got 1.3 billion people earning roughly US$10,000 a year each. That puts it firmly in the middle-income group of countries around the world. That is only going to go up. It is not going to go down over the next few years.

Steve: Which of our four big themes in my China Opportunities letter would you say you like the most at this moment?

The first big theme is consumer tech… I came home from my visit with you and realized that Tencent is going to be the largest company in the world someday. So the first of our four big themes is the China “New Economy” boom – companies like Tencent.

The second big idea is MSCI, the A-shares being added to the MSCI indexes.

The third big idea is the incredible values in the major China real estate companies.

The final big idea is that Chinese banks are just SO cheap.

Can we end our discussion on one or two of your favorite ideas within those themes?

Peter: Coming from a real estate background myself and covering that sector around the world for many years, I can say the undeniable reality in China is that you are going to have something in the region of about 125 to 130 million people move from the countryside into the cities over the course of the next decade. So that whole theme of urbanization is an absolutely fundamental secular theme… meaning it’s extremely long term.

Steve: So you are bullish on real estate. But the headlines are gloomy…

Peter: That’s the cyclical part. Real estate is a cyclical industry. We know that. The issue in China is that the government basically controls everything. It can’t resist the temptation to meddle.

At the moment, for the major cities, China is putting its foot gently on the brakes because property prices are going up at a pace that the government thinks is too fast in the top 10 tier-one cities – places like Shanghai and Beijing. But the lesser-known tier-three and -four cities are extremely behind the curve.

Prices there are flat. And in fact, there is an excess supply. China doesn’t need to step on the brakes. It needs to step on the accelerator. So it depends on which side of the country you are in.

Tama: I am definitely going to go with the consumer-technology theme, for sure.

Steve: So you are with me… that Tencent could be the world’s largest company someday soon?

Tama: Yes, 100%. I remember Uber was celebrating I think in 2015 when it did its one billionth ride after four years… Well, Didi Chuxing – the Chinese Uber equivalent – did one billion rides in 2015 alone. So China is leading the way in technology right now.

Steve: I would not have believed it if I had not experienced it myself thanks to the trip with you.

Well, thank you so much for just taking a few minutes here. This was great. A great benefit for our subscribers. I hope to see you in China one of these days soon.

Peter: We are looking forward to it. We have a few more ideas for you to chase when you come back.

Steve: Oh, fantastic. I look forward to it!