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

To: RealMuLan who wrote (965)	10/8/2003 7:47:11 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China would win any US trade war By James Kynge Published: October 8 2003 5:00 \| Last Updated: October 8 2003 5:00 The debate over whether China should or, more to the point, will revalue the renminbi has lasted almost a year and shows no sign of abating, writes James Kynge. Every week, analysts come up with fresh forecasts and US politicians articulate their views. All this input drives considerable activity on Singapore's renminbi futures market, which was last week pricing in an appreciation of 5 per cent against the US dollar in a year's time. But for those that invest in or trade with China, the maelstrom of conflicting opinion can be confusing. Such concerns are real. With its fixed interest rate regime, China offers no liquid mechanism with which to hedge against currency risk. This increases the pressure on multinationals to make accurate in-house predictions on where the renminbi will be in six months, a year and 18 months from now. China's position on the issue, economically and politically, is straightforward. It is the influence of US politics before the 2004 presidential election that remains the wild card. The People's Bank of China, the central bank, has pledged to introduce flexibility into its exchange rate mechanism over time. This does not mean revaluation. It means gradually rebalancing demand for the US dollar and renminbi within China by successively easing capital controls. Then, when demand for the renminbi and the US dollar in China are more closely aligned, the central bank plans to widen the band within which the Chinese currency fluctuates, officials at the central bank say. This, it is hoped, will appease calls from the US administration for greater flexibility in China's exchange rate regime. The impact of US politics is much harder to forecast. Chinese policymakers know that the more harshly President George W. Bush is criticised for the loss of 2.5m American jobs since he took office, the more likely it is that his administration will try to shift much of that blame to China, senior Chinese officials say. But, according to Chinese officials, Beijing is far from defenceless should a trade war erupt. Foreign companies - many of them American - produce more than half of China's exports. And 65 per cent of the growth in exports of the past decade has come from foreign investors, according to David Hale, a Chicago-based economist. China is a far more open economy than either Japan or South Korea, former targets of US trade scrutiny. It has received more than $400bn in foreign direct investment, compared with $17bn by Japan and $12bn by South Korea just before the Asian financial crisis in 1997, Mr Hale adds. Last, Beijing, as the second largest buyer of US treasuries, wields a significant potential influence over the future of US interest rates. If it decides to scale back its buying of US paper, US interest rates could rise. news.ft.com

To: RealMuLan who wrote (965)	10/10/2003 5:18:10 AM
From: GUSTAVE JAEGER	Read Replies (1) \| Respond to of 6370

'The US's surreal economy can't borrow indefinitely' October 08, 2003 14:37 IST Last Updated: October 08, 2003 14:37 IST Demystifying the US economy, a noted economist has said the American giant is living on 'borrowed purchasing power' and this "surreal economy cannot continue indefinitely." "The US is a paradox. It is the largest thriving economy in the world - average annual rate of growth 2.6 per cent - but, by some measures, it is also among the most inefficient," says Weijian Shan, a partner at Newbridge Capital, a private equity firm, in an article in The Wall Street Journal. The mortgage system is the main symptom of America's weakness. The bad loan ratio is put at 50 per cent, i.e. the official estimate. This is particularly worrying because bank loans currently make up almost 98 per cent of the total financing for US companies, says Shan. This squandering of resources can coexist with growth because the country has two 'advantages.' One is the abundance of foreign capital. America's 20 per cent savings rate is one of the lowest in the world. The second is capital freewheeling. US citizens can convert their money into foreign currency for the purpose of investing abroad. In such a system, growth can only continue as long as households continue to borrow at a high rate and the government maintains tax cuts so those loans are not allowed to flow out of the country in search of better returns. Standard & Poor's estimates it will cost some $518 billion, or more than 20 per cent of the US's GDP, to clean up the country's deficit. These costs, plus the equity write-off of those companies that will go bankrupt without continued funding from banks, translate into years of negative growth. The US's growth, therefore, can be regarded as being borrowed at a very high cost, which will need to be repaid sooner or later, says Shan. [...]