Below are my #predictions, written on 3 July 2023.

  1. China and the United States will reach a compromise. China will make large purchases of US Treasury securities, exceeding $200 billion.
  2. The United States will loosen restrictions on chip sales to China through licences that require periodic renewal, while tightening control over the critical technologies used to manufacture chips.
  3. The target for RMB depreciation is beyond anyone’s control, but at this stage the downward trend suits the strategies of both China and the United States, and perhaps those of the wider world. That makes it difficult to predict how long or how far it will fall. If forced to give a forecast, I would say it may stabilise when the Federal Reserve stops raising rates, though stabilising does not necessarily mean it will stop falling.
  4. The offshore renminbi market has grown beyond control. It will be all but impossible for China’s central bank to regain control of the exchange rate, and currency controls will gradually lose their force. One possible direction would be to use the digital renminbi to control onshore currency and separate it from the offshore renminbi, but that would still be extremely difficult to implement.
  5. RMB depreciation will bring a short export boom. Once inventories of essential inputs are depleted, in roughly six months, higher import costs will drive large price increases in China, lower profits, falling labour costs and lower employment.
  6. The property sector will split into distinct groups. Growing cities, measured by population, will continue to receive incremental capital, and home prices will rise as credit policy loosens. In stable cities, including Beijing and Shanghai, inflows and outflows of people will compete, and employment will determine home prices. Bubble cities will face collapse. Prices for homes in sought-after school districts will gradually cave in.
  7. China will not introduce aggressive stimulus at this stage. The aim is to reap a short export dividend from exchange-rate movements after a reconciliation with the United States, though the effect is doubtful. Large-scale stimulus may arrive at the end of 2023 or in the first quarter of 2024, depending on circumstances.
  8. The result will be a substantial loss of wealth accumulated in China over several decades. The Chinese middle class will bear most of that extraction, although most people do not yet feel it because liquidity is still present.
  9. On the timeline, September and December 2023 will be important interim turning points for China’s economy. Monetary liquidity, for companies and individuals alike, will be decisive. The exchange rate will be secondary.
  10. One piece of advice: a. Aggressive strategy: mortgage every asset you can, borrow RMB and convert it into dollars. Borrow for six to twelve months; any interest rate below 8 per cent is acceptable. Go fully short. Your return will depend on your leverage and movements in the RMB exchange rate. b. Moderate strategy: make regular purchases of physical gold, rent out idle property, and preserve ample liquidity rather than holding a stock of RMB deposits. c. Idiotic strategy (meaning: do not do this): borrow to start a real business while holding a large amount of cash in RMB.