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

To: RealMuLan who wrote (22411)	1/29/2005 10:55:59 AM
From: mishedlo	Read Replies (2) \| Respond to of 116555

CHINA: DETERMINING THE YUAN’S FUTURE [some nice charts in the link below Yiwu - Mish] Now there’s renewed talk out of Washington suggesting that the yuan should be revalued at the earliest possible time, while some economists are digging out their overheating scenarios. All this is happening while Beijing digs in its heels and says everything’s fine and the renminbi yuan rate is not going anywhere for the moment. Now that the discussion has started up again, which side has the stronger argument? After weighing both sides, there is some validity in Beijing’s claim that things are under control. First off, inflation has decreased markedly over the last half of the year, ending 2004 at a comfortable 2.4% on-the-year. This accomplishment alone implies some success in conquering the overheating issue, even though the CPI is a compiled statistic gathered from state and regional sources that may or may not be a reasonable representation of reality. However, the more convincing argument comes from figures out of the People’s Bank of China (PBoC), namely money supply. This series shows a significant drop-off starting in Q2 2004, and only turning around as of last quarter. M2 data are also generally more accurate as they are maintained from the PBoC. At the G-7 meeting during the first weekend in February, the topic of the yuan will be brought up along with the weakening dollar, and the Chinese renminbi will likely be part of the US response to criticisms about the faltering greenback. Understandably it would be dangerous for China to change its currency regime in the middle of a slowdown, assuming one is on the way, as a revaluation would exacerbate a slowing economy significantly. More importantly, there’s no reason to believe Beijing will be persuaded by the industrialized nation’s complaints and consider a near-term shift in the value of its currency. Strong words from the industrialized nations have rarely made much of an impact on China’s internal decision making process, and right now Beijing’s numbers are making the most convincing argument of all. northerntrust.com