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Decoding China’s institutional reforms; what Yi Gang as central bank chief entails

SinoInsight 1
China’s renminbi-denominated crude oil futures are set to be listed on the Shanghai International Energy Exchange on March 26. Due to China’s foreign exchange controls, the RMB exchange won’t be fixed by the markets. The RMB crude oil futures provides foreign investors with a legal tool to short China’s currency.

OUR TAKE
America’s pro-business policies (tax cuts, the Fed raising rates) will see a trend where the dollar strengthens and the RMB becomes devalued. Foreign investors who expect the RMB to devalue could short crude oil futures in international markets while seeking RMB financing to buy China’s crude oil futures long. When the RMB depreciates, the price of the oil futures will rise, and the sale of futures would short the RMB. And if investors take advantage of arbitrage by exchanging their RMB for the dollar, then China’s foreign exchange reserves would be hit and a series of financial risks will be triggered.

SinoInsight 2
According to state media reports on March 21, members of the Politburo each submitted a written report to Xi Jinping. Xi read the reports and appraised the Politburo members using seven criteria.

OUR TAKE
The decision for the Politburo to submit annual written reports to Xi was made after the 19th Party Congress in October 2017. The institutionalization of reporting to Xi represents a break from the “collective leadership” model, and shows that he is not “first-among-equals” but a “General Secretary Plus.” (Link)

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