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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (2982)	12/8/2003 10:21:12 AM
From: russwinter	Read Replies (1) \| Respond to of 110194

December 8, 2003 China bringing money home from US, other foreign banks SHANGHAI - China is bringing home billions of dollars in US and other foreign banks, shrinking the pool of financing for American government bonds, according to the Bank for International Settlements. The move is prompted by China's need to meet demand for US dollar-denominated loans at home and speculation on a strengthening in the value of the Chinese yuan, said the Geneva-based BIS, which links the world's central banks and monitors global money flows. China invests part of its multibillion-dollar trade surpluses in US and other foreign bonds. According to the BIS, since 1999 that has played a key role in financing government budget deficits and holding down interest rates. But money held abroad by Chinese banks fell to US$70.4 billion by the end of June, down from US$92.5 billion two years earlier, the BIS said in a report seen on Monday on its Web site (www.bis.org). 'The surplus of funds placed in the international banking system by the Chinese banking sector that has been available for the financing of foreign government deficits is shrinking,' it said. Deposits abroad by other Asian economies also are falling, the bank said. Taiwanese banks' overseas deposits fell to US$21.5 billion in the second quarter of this year - half the US$42.5 billion that they held abroad two years earlier, according to the bank. It said South Korean banks brought home US$6.3 billion in the second quarter of this year. China is the third-biggest investor in US treasury bonds, after Japan and Britain. Overall foreign purchases of Treasury bonds have fallen from more than US$40 billion per month through July to US$25 billion in August and US$5.6 billion in September, according to the BIS report. The shift in money comes amid US pressure on China to end strict currency controls that American officials say keeps the value of country's currency, the yuan, too low and makes Chinese exports unfairly inexpensive. The BIS report said some of the movement of Chinese deposits also was prompted by expectations that China might increase the value of the yuan, which Beijing has kept at a value of about 8.3 to the US dollar since 1994. Chinese leaders say they will eventually loosen currency controls, but have given no timetable. They say China's banks can't handle the shock of a sudden change. Critics of this strategy argue that a stronger yuan would make US bonds relatively less attractive. If the dollar plunged, foreign investors might sell off US stocks and bonds. That could force up interest rates and jeopardise the US economic recovery.