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

To: sciAticA errAticA who wrote (15286)	6/15/2004 2:42:19 PM
From: russwinter	Read Replies (2) \| Respond to of 110194

Full story: In China, a Mystery in Foreign Exchange June 15, 2004 1357 GMT Summary The Chinese government is two months overdue in reporting foreign currency reserve statistics -- a delay that could be used to hide capital flight or secret government expenditures. Analysis For the past two months, China has been remiss in reporting figures for its foreign currency reserves -- statistics that normally are released on a monthly basis. The delay is eyebrow-raising; because it is a large pool of money, the country's foreign reserves can be useful as a slush fund. In the past, Beijing has used some of its reserves to bail out two of its largest state-controlled banks. The delay in reporting April and May statistics could stem from a number of factors -- for instance, incomplete data or a snafu within the government's statistical bureau -- but it is impossible to disregard the possibility that Beijing could have something to hide. As of last reports, China had deep reserves of foreign exchange; levels stood at $403.3 billion at the end of 2003, not counting the $45 billion that was set aside for capital injections for the Bank of China and the China Construction Bank. Official reserve numbers climbed to $416 billion in February and $444.4 billion in March. If Beijing has deliberately delayed the release of new foreign reserve statistics, several possibilities suggest themselves. First, large amounts of "hot money" are flowing into China, with speculators betting on the continuation of a real estate boom and the revaluation of the yuan. Speculative investors, by definition, are ready to pull out at a moment's notice, and it is possible that the recent concerns over China's economic growth could have triggered capital flight. If so, Beijing would want to avoid publicizing the trend as long as possible in order to prevent a panic that would cause the steady stream of money that is already leaving the country to turn into a flood. Another possibility is that the central government delved more deeply into its forex accounts than publicly stated in order to bail out troubled state-owned banks. Chinese lenders are saddled with an inordinate amount of nonperforming loans. More funds might have been allocated for the Bank of China and the China Construction Bank, which received their capital injections in January -- or Beijing quietly might have injected funds into other banks in order to keep loans up and continue to fuel economic growth. Finally, it is possible that Beijing used some of its foreign reserves for a large secret expenditure, such as a military acquisition. China is rapidly expanding its military arsenal, possibly for what it sees as an inevitable standoff with Taiwan. It is conceivable that the money was used to purchase new weapons platforms or off-the-shelf systems from Russia, its top arms supplier.