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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (21692)1/20/2005 2:40:15 PM
From: RealMuLan  Read Replies (1) of 116555
 
Mish, here is more from what Zhou XiaoChuan has said the other day, which I don’t see that English report mentioned.

As for why China should keep a large amount of foreign reserve, Zhou said it is necessary for China to prepare enough foreign reserve. China should be prepared for the reversal of the foreign investment. Usually, foreign investors expect an annual return of 10%. [My own read: in case their expectation is not met (means when Chinese economy slows down or the US increases plenty of their interest rate), they will leave].

Zhou said foreign investment would have to leave sooner or later. There are a total of more than $500 billion FDI in China now. So China has to make sure to meet their demand when they want their money back. [, My own take, China is fully prepared for the exit of FDI in case China slows down]

Zhou said most of short-term foreign debt comes from the loan of foreign banks. And some of them are from foreign reserve of the enterprises. He thinks that this short-term foreign debt may very possibly have been changed into RMB now. So when condition is right [My read, disappointed at China not going to revalue], these short term debt will be exchanged back to foreign currency, and this is another reason why China has to prepare a large amount of foreign reserves.

Considering all of the above, the current foreign reserve of China ($609.9 billion and counting) is not high after all, Zhou said.

[So, the main point of Zhou’s speech is to prepare for the possible expatriation of foreign investment for ….<filling your own blank<g>]
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