This will push up Wal-Marts prices. The yuan has to go up enventually.
WALL STREET JOURNAL - Speculative Funds Going to China
Worry Officials About Yuan's Peg
DOW JONES NEWSWIRES
November 11, 2004
SHANGHAI -- Chinese banking officials say massive amounts of speculative money are flowing into China, putting heavier-than-expected pressure on the Chinese currency and the central bank's ability to maintain the currency's peg to the U.S. dollar.
At a closed door meeting last weekend, Wang Zili, deputy governor of the Guangzhou branch of China's central bank, told banking regulators and executives that $70 billion of capital flowed into China during the first half of the year through "black market trading and underground lending houses" and other sources that can't be identified, according to minutes of the meeting seen yesterday. Driving the inflows were strong expectations that China's currency, the yuan, will be allowed to appreciate, the minutes said.
"The yuan is indeed facing very big pressure to appreciate, and the main reason is that China's foreign reserves are growing too fast," the minutes quoted Mr. Wang as saying.
Separately, the minutes cited another deputy central bank governor, Meng Jianhua, of the People's Bank of China's branch in Yangzhou, Jiangsu province, as saying that companies surveyed in Yangzhou believe that any "yuan appreciation should be small and gradual." According to the minutes, the survey of 200 companies found that 79% found "a yuan appreciation within 5% can be acceptable."
The minutes are the latest sign of the pressures China faces in maintaining the yuan's seven-year-old peg to the dollar and that officials are exploring how to relax the peg. Any loosening is likely to see the yuan rise in value and the dollar fall and could ease some of the upward pressure on other major trading currencies, the yen and euro.
According to the minutes, the meeting was held last Saturday and hosted by Shanghai-based Bank of Communications, one of the country's biggest lenders. Officials from branches of the central bank and foreign-exchange regulators, as well as academics, commercial bankers and representatives of the commerce ministry, attended and exchanged opinions on China's currency policy and system.
Two participants confirmed that the meeting took place at the weekend. A central bank spokesman declined to comment yesterday on the meeting, and said he couldn't immediately verify the figures quoted in the minutes.
Simon Flint, senior strategist at Bank of America in Singapore, said as market participants read news of the minutes, the discount on dollar-yuan nondeliverable forwards widened, implying greater pressure on the yuan to appreciate.
Together with a large trade surplus and actual foreign direct investments, the surge in inflows in the first half pushed China's foreign-exchange reserves to $514.5 billion by the end of September. |
