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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (716)	9/15/2003 3:58:11 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Floating yuan could weigh on the US ..."A revalued renminbi, according to prevailing logic, would help redress America's lopsided trade balance with China and bring some competitive relief to US workers threatened by low-cost Chinese labour," the chief market strategist at Banc of America Capital Management in New York, Joseph Quinlan, notes. The problem, as he and others point out, is that the true picture is much murkier. For one, the troubles besetting US manufacturing and the broader job market run much deeper than companies decamping to China. In a recent research paper, economists at the Federal Reserve Bank of New York said the jobless recovery was rooted largely in structural changes in the US economy. Jobs that had been lost simply had not come back and were unlikely to do so, they noted. What's more, while "Made in China" has become ubiquitous around the world, many goods that carry the label come from foreign subsidiaries of global multinationals. Because exports are measured from the point of origin, China's exports to the rest of the world probably appear magnified. ... Portfolio inflows from China more than doubled in the first half of the year to $US41.1 billion from the same time a year ago, according to data from the US Treasury, with the bulk of that going into US Treasury and agency bonds. China's total holdings of treasuries are now second only to Japan's, the largest foreign presence in the US government bond market. This means China has been a major player in keeping US interest rates low and financing the burgeoning gap in the US current account. What's more - and this underscores the intertwined nature of the US relationship with China - by doing this, China not only provides US consumers with low-priced goods, it also lends them the capital with which to buy them. In this context, pushing Beijing to drop the peg altogether, as some manufacturers and politicians want, not only fails to address the structural problems in the US manufacturing sector but also carries risks. "Should the US opt to curtail or sanction China on account of its exchange-rate policy, it may be cutting off a key source of foreign capital, something the world's largest debtor nation can hardly afford," Quinlan says. Many economists believe something will eventually have to give. And indeed China, which has to grapple with the rapid growth in money supply caused by the yuan peg and a rush of speculative capital into China in anticipation of a change, has indicated it is willing to make adjustments as it moves towards a fully floating yuan at some point in the future. But it's likely that whatever happens will not be a dramatic abandonment of the currency band. For one, this wouldn't be in keeping with China's gradualist approach to reform of its economy, especially as it grapples with the domestic problem of maintaining growth to provide jobs for the rural population. It also might not be in the interests of the US. afr.com