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

To: RealMuLan who wrote (2909)	3/18/2004 1:27:45 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

ANALYSIS-China yuan warnings reveal policy dilemma Reuters, 03.17.04, 11:49 PM ET BEIJING, March 18 (Reuters) - If any delegate to China's parliament made waves last week, it was currency regulator Guo Shuqing, whose barrage of warnings sent "hot money" speculators scuttling for cover. Charged with overseeing China's frothy capital account, Guo waged a media campaign to caution those betting on appreciation of the yuan. Guo's aim, analysts say, was to stem a tide of destabilising short-term investment while managing expectations so one-way betters do not get their fingers burnt. Questioning prevailing wisdom that the yuan, virtually pegged to the U.S. dollar since the mid-1990s, is undervalued, Guo said the exchange rate might even fall, given emerging trade deficits with the rest of the world. Speculators could end up paying a heavy price, he warned, prompting some traders in the yuan non-deliverable forwards market to scale back expectations of a policy shift. Guo's comments shed no light on whether China actually plans to make the yuan more flexible this year, but they did highlight question marks over which way the currency might eventually move. Underscoring just how nervous China is about "hot money" -- speculative funds -- pouring in, the central bank and Premier Wen Jiabao reiterated pledges during the annual parliamentary session to keep the yuan stable. Hot money flows, which Standard & Poor's believes may have been as much as $50 billion last year, have swollen an already rising money supply pool that some economists have linked to the re-emergence of inflation. The steady stream of hot money has prompted record issues of short-term securities by the central bank to mop up excess liquidity. "Chinese leaders know that when people like you, they give you money; and tomorrow, when they don't, they take the money away," said Morgan Stanley economist Andy Xie, who sees no change to the yuan exchange rate over the coming 12 months. "With this talk of a renminbi appreciation, so much speculative capital has been put to use. That is making their job much more complicated". ... China's once-vaunted trade surplus swung to a $7.9 billion deficit in the first two months of this year. "If that magnitude of trade deficit would continue as such we might need to assess the possibility of a yuan devaluation at the end of the year," said Goldman Sachs economist Hong Liang, who expects a nine percent appreciation in the yuan this year. forbes.com