Hello WFG, On the issue of China RMB, my current feel is that 'the Blue Nosed Dolphin is not in the Water' - Jay signals by rubbing nose in sideways motion with finger, as opposed to up, or down :0)
(a) They will keep in mind reform, growth, and stability
(b) So there will likely be no sudden moves even as they feel they need to reform the exchange regime in the context of overall reform, safeguard and modulate growth, but all in the context of maintaining stability (not too hot, and not too cold)
(c) They will likely continue to work on expanding hedge instruments availability, add to forex market liquidity, restructure banks, ... all the stuff that needs to be done before free-float
(d) They will likely not expand the RMB trading band now because should they expand the band, given market heat and expectation, even more hot money will flood in (trade surplus is actually just 25 billion with whole world including US, and rest of forex buildup is FDI flow, plus hot money)
(e) They will likely continue to control FDI inflow, encourage FDI outflow, modulate export, increase import, rather than fiddle with forex rate itself
(f) They will likely continue to expand investment to soak up savings and encourage overseas investment (most likely via HK market) to relieve money pressure
(g) The speculators may end up disappointed if they continue with the bet that RMB will be revalued soon (within 2004), and in the longer term (within 5 years), the RMB will most likely tank.
On the event that China is now in trade deficit, a bit of it is due to front-loading of export at the end od December by companies to beat the lowered still VAT rebate on export (I think the export VAT rebate will disappear over the next 2 years) which has the same effect as revaluation without as much potential downside.
But, at the end, I feel that China can always do something unexpected, as in the case of using forex reserve to recap banks in 2003, and uniting the dual-currency regime back in 1993 seemingly out of the blue (although that move was apparently worked out 4 years before and just held back for the right time).
Chugs, Jay |
