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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (16782)	11/24/2004 7:29:33 PM
From: RealMuLan	Respond to of 116555

Analysis: China currency reform diverges from Japan’s path SINGAPORE: Faced with mounting pressure for a stronger currency and a big current account surplus, an Asian powerhouse decides to let more capital leave the country and blocks money from coming in. China in 2004? No, Japan more than a quarter century ago. And as financial markets try to figure out when China might free up its currency, Japan’s past may be the best guide investors have. After years of trying to stop Chinese from exporting their capital out of the country, last week the authorities created some small outlets for local currency. Overseas Chinese were given permission to transfer assets into foreign currency and the rates on foreign currency deposits were raised. “This is just a prelude to the inevitable, ultimately China has to revalue the renminbi,” said Gunter Dufey, a visiting professor of international finance at Singapore’s Nanyang Technological University. China’s yuan, or renminbi, is tightly pegged near 8.28 per dollar. There is intense pressure for it to revalue and, by some estimates, $70 billion of speculative capital entered China in the first six months of 2004. Just as Japan dealt with excess capital in the 1970s and then a flight of money in the 1980s, China, analysts say, is trying to make its rules on capital flows more neutral. A team of US and Chinese officials is studying China’s foreign exchange systems, similar to a yen-dollar committee of the 1980s. Japan liberalised its capital account in one stroke. China could take anywhere between 2 years to a decade. Huw McKay, an economist with Westpac Bank in Sydney, said China was merely doing what Thailand and others have done in the past to ease pressure on their currencies. “We don’t necessarily see it as reform, we see it almost as counter-cyclical policy,” he said. Challenges: McKay expects China will move simultaneously to freer capital mobility and a more flexible yuan in 2006, when it is compelled by World Trade Organisation obligations to throw open the banking sector to foreign competition. “The banking system, the foreign exchange regime and the capital account are all tied in together, that’s why.” But Cliff Tan of Citigroup thinks it will take five to 10 years before China has a sound banking system, and that the capital account will be tightly controlled until then, even if the yuan is allowed to move more freely. The challenges of a pegged currency, a more open economy and a weak banking sector mean China can not follow Japan’s exact path to liberalisation. “China is very constrained in the degree to which it can offset these inflows with capital account liberalisation,” said Desmond Supple, head of Asian research at Barclays Capital. “There is a limit to how fast it can proceed because it cannot afford a large capital shift of renminbi liquidity from bank deposits into overseas assets.” “To counter short-term inflows by increasing the ability for long term capital to flow out is probably not the optimal way.” Letting too much yuan to leave the country too quickly is a threat to the state-run banks. The big four state banks have a bad loan ratio of nearly 16 percent and compete with a flourishing grey market for funds. Hot money: Despite the relatively closed capital account and strict limits on foreign investment in yuan assets, analysts say massive amounts of speculative money gets into China, through underhand deals, via Hong Kong and simply by exporters inflating their overseas receipts. “To have tight capital controls in a relatively free economy is virtually impossible,” said Nanyang’s Dufey. China’s foreign exchange reserves, the world’s second largest after Japan, rose by $111.3 billion to $514.5 billion in the first three quarters of 2004. Only $48.7 billion of that was foreign direct investment and under $4 billion was from the current account surplus. Economists say such gargantuan amounts of money in the system can be inflationary and interfere with monetary policy. Lifting restrictions on capital is one option, but that could also provide legal channels for betting on a yuan revaluation. Tide turns: Most of Asia has been inundated with money betting on stronger currencies and China leads the pack. Asia’s reserves have risen some $350 billion in the first 9 months of 2004. It has been a sea-change for a region that, after the 1997 financial crisis, has been obsessed with accumulating reserves and discouraging short-term capital flows. David Simmonds, strategist with the Royal Bank of Scotland, said from 1995 until 2001, China had “dollar seepage” where reserves fell short of surpluses from exports and investments. “Over the past 2-3 years, the habit of two generations is suddenly reversed as money pours out of dollars and into yuan, prompted by earlier plunging dollar savings rates, the falling dollar, and of course expectations of yuan revaluation. “China has the wrong system for the wrong problem with respect to hot money flows,” Simmonds said. —Reuters dailytimes.com.pk

To: RealMuLan who wrote (16782)	11/24/2004 7:49:41 PM
From: ThirdEye	Respond to of 116555

You presume two things: That discussion is eqivalent to meddling...and that the definition of what is or is not a Chinese internal affair is solely and exclusively up to China. Neither is the case. I will not bring this up with you again. Not here or anywhere else. But you might wonder why Mao was so afraid of a society that had been completely demilitarized for 300 years, and why China is so afraid of the Dalai Lama now.

To: RealMuLan who wrote (16782)	11/24/2004 8:44:31 PM
From: microhoogle!	Read Replies (1) \| Respond to of 116555

Yiwu, China has usurped a lot of Indian border areas <vbg>. Also it had the gall to claim an entire state of Arunachal Pradesh as it's own. Further it accepted disputed territory of Kashmir ceded to it by Pakistan even though India has claim on it. You seem to be very defensive about China's territorial transgressions. If I am not mistaken it also snatched some land from Vietnam. Not to forget spratly islands, flexing muscle in south china sea, setting up listening outposts in Burma. Why does China bully nations around it <vbg> ? I am just pulling your leg, so don't have to bother responding.

To: RealMuLan who wrote (16782)	11/24/2004 10:06:58 PM
From: el_gaviero	Read Replies (2) \| Respond to of 116555

My answer to you is that you are full of it. Taiwan has been an independent country for 50 years, and has made a success of it, while the party that is running China, over the same fifty years, committed millions upon millions of political murders, and managed to kill off another hundred million through starvation because of general incompetence, brutality and stupidity. In Tiananmen square a few years ago they murdered another couple of hundred for good measure. If you want to support the party of jerks, political whores, poltroons, psychotic killers, control freaks, ass-licking scum bags and stinking pieces of sh*t who did this, go ahead, but I vomit on you for doing so. The more I think about your answer, the more angry I get. I think what we should do is give Taiwan a bunch of nukes, and the means to deliver them. That would shut you up.