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

To: RealMuLan who wrote (5194)	7/25/2005 2:49:01 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China Central Banker Says Hedge Funds Delay Yuan Convertibility July 25 (Bloomberg) -- China won't make its currency fully convertible for at least five years because it worries hedge funds may force the yuan to plunge, much as happened to the Korean won and Thai baht during the 1997 Asian financial crisis, said Li Deshui, a member of the central bank's monetary committee. ``There's more than $800 billion to $1 trillion of hedge funds in the world and the Chinese financial system is relatively weak,'' Li said in an interview. ``If the (yuan) becomes fully convertible it would be attacked by these hedge funds.'' China last week ended its currency's decade-old peg to the U.S. dollar, allowing the yuan, also known as the renminbi, to strengthen 2.1 percent from its previously fixed rate of about 8.3, marking the first step toward a more flexible exchange rate regime. The U.S., European Union and Japan have pressed China to de-peg the yuan and allow it to strengthen to curb what they say is an unfair advantage for Chinese exporters. Li, who is also commissioner of China's National Bureau of Statistics, said the state of the country's banks is a key reason why the government won't allow the yuan, also known as the renminbi, to become a fully tradable currency anytime soon. ``Over the next five years, I do not foresee the renminbi becoming fully convertible,'' Li said in Beijing on July 22. ``Our banks are not good enough and the monetary system is not quite up to international standards.'' Economists and institutions including the International Monetary Fund have urged the world's third-largest trading nation to gradually make the yuan convertible on the so-called capital account, which would allow money to flow freely in and out of the country for investment purposes. The currency is already convertible on the current account for trade in goods. Last Defense The lack of full convertibility of the yuan is ``China's last economic and financial defense,'' Li said, adding that the government will ``not easily allow'' the move. Chris Leung, an economist with DBS Bank in Hong Kong, said China's move to full yuan convertibility will hinge on whether the pace of the country's economic growth can be maintained. ``If the economic growth slows down, the government will have to move on at a much slower pace,'' said Leung, who wrote a note on July 20 predicting that the yuan's revaluation was imminent. ``There are way too many problems and contradictions in China's economic development that need to be solved, so I believe it must be longer than five years.'' China last week said the country's economic growth rate accelerated to 9.5 percent in the second quarter, from 9.4 percent in the previous three months, aided by a surge in the country's trade surplus. Yuan Trading Under the new exchange rate mechanism, the yuan will be allowed to trade within a limit of 0.3 percent either side of the yuan-dollar exchange rate published by the People's Bank of China each day. The yuan will be allowed to trade within a 1.5 percent range either side of the rate published for other currencies. The exchange rate will use a basket of currencies, the composition of which has not been disclosed, as a reference. The currencies of China's major trading partners will be included in the basket, Li said. ``I'm not talking about just yen, euros and pounds,'' he said, declining to specify the weightings. ``You name the currency it's in the basket.'' China's main trading partners last year in descending order of total value of trade were the European Union, the U.S., Japan, Hong Kong, the ASEAN bloc, South Korea, Taiwan, Russia, Australia and Canada, according to the country's commerce ministry Web site. ``The reform of the renminbi exchange rate structure will have a positive impact on China and the global economy,'' Li said. quote.bloomberg.com