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

To: RealMuLan who wrote (4779)	5/6/2005 4:20:40 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China Is `Working Very Hard' on Exchange-Rate Reform (Update3) May 6 (Bloomberg) -- China is ``working very hard'' to revise its exchange-rate system, though hasn't yet decided on a particular currency policy or a timeframe for any move, Deputy Finance Minister Li Yong said at a briefing in Istanbul. Li, who is attending the annual meeting of the Asian Development Bank, said ``the economic situation domestically, particularly the market mechanism, and financial sector reform and capital-account liberalization'' have to be right before the yuan's exchange rate can change. The government has kept the currency's value at about 8.3 per U.S. dollar for the past decade. China should loosen the yuan's peg to the U.S. dollar immediately, Bobby J. Pittman, deputy assistant secretary at the U.S. Treasury, said in the text of a speech given yesterday to the ADB's board of governors. Japan's Finance Minister Sadakazu Tanigaki also yesterday called for China to adjust its exchange rate, though refrained from giving a timeframe. Chinese policy makers ``are now recognizing they don't have much of a choice,'' said Jim O'Neill, head of global economics research at Goldman Sachs Group Inc. in London. ``The best way of reducing future speculation would be to make a bigger change than expected.'' He predicts the yuan will be allowed to appreciate 5 percent and trade more freely around the revised rate ``some time soon,'' with a bigger move likely within 12 months. Robert Sinche, head of global currency strategy at Bank of America Corp. in New York, and Stephen Jen, Morgan Stanley's London-based head of global currency research, said China is likely to wait until the second half before making any changes to the yuan's exchange rate. Excessive Speculation The yuan would rise to 7.7945 against the dollar in a year if freely traded from the pegged rate of 8.2770, a gain of 6.2 percent, according to forward contracts as of 3:49 p.m. in Hong Kong. The contracts allow investors to bet on the value of a currency that isn't fully convertible or hedge investments denominated in it. China's Finance Minister Jin Renqing, also in Istanbul, said May 4 too much speculation on a possible revaluation is making it difficult to adjust the peg. China's foreign reserves, the world's second biggest, jumped 50 percent from a year earlier to a record 659.1 billion at the end of March as exports surged and investors bet the government will let the yuan appreciate. A revaluation of the yuan would be in China's own interest, Li said, rejecting suggestions that international pressure is forcing the government's hand. `Domestic Needs' ``I feel pressure not from outside, but from domestic needs,'' he said. Without domestic pressure, China is unlikely to move, according to Deutsche Bank AG Chief Economist Norbert Walter. ``I believe the Chinese authorities will talk, and will continue to talk and not act until there is a domestic need and the political pressure at home to act,'' Walter said yesterday at a seminar organized by the ADB. U.S. lawmakers and manufacturers say the Chinese yuan is undervalued, giving exporters in Asia's second-biggest economy an unfair advantage. The U.S. last year posted a record $162 billion trade deficit with China and Chinese exports to the rest of the world surged 33 percent in March. The trade gap may widen this year as a government clampdown on investment in China curbs the nation's appetite for imports, which rose 19 percent in March. Growth Too High Li said today that China's economic growth is ``still too high,'' suggesting restrictions on lending and investment are unlikely to be relaxed. The economy expanded 9.5 percent from a year earlier in the first quarter, faster than the government's projection of as much as 9 percent. Premier Wen Jiabao last year ordered banks to curb lending to industries including real estate, steel and autos after surging fixed-asset investment drove raw-materials prices higher and strained power supplies. Investment in real estate and steel projects is still excessive, Li said today. The Institute of International Finance said yesterday China's economic growth this year may match 2004's 9.5 percent, which was the fastest since 1996. Last week, the World Bank raised its 2005 economic growth forecast for China to 8.3 percent from a November estimate of 7.8 percent, citing stronger-than-expected exports and consumer spending. Li reiterated the government's forecast that the budget deficit will be 300 billion yuan ($36 billion) this year, 20 billion yuan less than in 2004 and equal to 2 percent of the nation's gross domestic product. He also repeated the government's plan to issue 80 billion yuan of domestic bonds this year to finance infrastructure projects, 30 billion less than in 2004. He added that China should issue global bonds at least once a year to establish benchmarks for corporate debt. bloomberg.com