德意志银行-人民币展望-20170801-deutschebank-rmbview：westillexpectdepreciationbutatamoregradualpace.pdfVIP

Deutsche Bank Research Asia Economics Date China Update 1 August 2017 RMB view: We still expect depreciation but at a more gradual pace We revise our USDCNY forecast to 6.9 by end of this year, 7.1 in 2018, and 7.4 Zhiwei Zhang, PhD in 2019. Before revision it was 7.1, 7.6 and 7.9 respectively. The revision for this Chief Economist year is due to the surprisingly weak US dollar against the other currencies, and +852-2203 8308 the upside risk in China’s growth outlook in H2 (please see our report on 17 July 2017). The revision for 2018 and 2019 is mostly driven by our forecast revision for EURUSD, as our FX strategists have a more positive view on Euro than before. We still expect a moderate but persistent depreciation against the PBoC basket, by 2.2%, 2.7% and 4.9% in 2017-19. The key driver of this depreciationary pressure is the property bubble in China. The economy is increasingly dependent on the booming property and land markets (see our report China’s indispensable property bubble issued on 17 March 2017). To sustain high property prices the government will likely keep monetary policy stance loose in the next fe years. The large wealth effect from the property bubble will continue to push up domestic demand for imports. We therefore expect the current account surplus to drop to 1.3% of GDP in 2017 and 1.1% in 2018 (1.8% in 2016), with risks on the down side. This boom of domestic demand is evident from the balance of payments. On the trade side, imports (excluding commodities and processing imports) grew at 0.6% in 2016 and 19.5% so far this year compared to -7.7% and 8.5% of export growth (Fig 1). In this exercise we exclude commodity imports to avoid the distortion from volatile commodity prices. We also exclude processing import