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

To: RealMuLan who wrote (5319)	8/8/2005 7:04:07 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Yuan moves ruled out for time being August 9, 2005 The yuan's exchange rate will not be adjusted any further in the next three to six months while Beijing assesses the impact of last month's 2.1 percent revaluation, according to a senior economist. ''Policymakers will observe the effects of the revaluation on the economy and the degree to which it is digested. This is an adjustment period,'' said Ba Shusong, a vice director with the Development Research Center that advises the State Council on economic policy. ''Exchange rate reform will affect trade, employment, farm products, and the overall economy. ''Companies and financial institutions all need time to adjust,'' Ba said in an interview. Ba's views reflect the stance of other economists, who say the People's Bank, having finally bitten the bullet on the long-awaited revaluation, will take a cautious approach to further adjustments of the exchange rate. The bank said in its second-quarter monetary policy report last week that it would adjust the yuan's new trading band when the time was right, but gave no hint when that change might occur. Ba said last month's move, which saw the yuan repegged to a currency basket, would make it easier to fight speculators. ``Under the floating exchange rate system, the initiative to take on speculators is in the hands of the central bank, while under the fixed exchange rate system, the initiative is actually in the hands of speculative capital,'' Ba said. The modest size of the revaluation had not given speculators much of a profit, while the new managed float system introduced uncertainty by allowing the yuan to move up or down, Ba said. The overhaul of the currency regime has also paved the way for Beijing to carry out other reforms aimed at making the yuan more flexible. Last week, a foreign exchange official said China was set to introduce interbank yuan forwards and allow banks to become market makers in US dollar transactions this month. Those moves would help hedge risk and increase liquidity. The revaluation would help bring about an overall balance in trade account, but would have only a very small effect on China's huge surplus with the United States, Ba said. China posted a US$39 billion (HK$304.2 billion) trade surplus in the first half, bigger than the surplus for all of last year. Many analysts expect the second-half surplus to be around US$40 billion, though a new estimate from a top Chinese think-tank said the revaluation would help slow export growth in the second half and limit the surplus to US$30 billion. State media quoted a central bank monetary policy adviser Monday as saying he expected the United States and other countries would soon start pressuring China to let the yuan rise in value. ``It is a pity that when we made such an important change, we didn't get any commitment from the US and other countries'' not to renew pressure, said Yu Yongding in an interview with the Economic Observer. ``So we must be fully prepared to stick to our plan to the end.'' He did not elaborate further on the plan. Yu said China had many options for curbing the inflow of hot money speculating on a further appreciation, including keeping strong controls on capital flows. ``Even if the yuan ultimately needs to appreciate by 10 percent or more, it doesn't mean we need to do it all at once,'' Yu said in response to a question on why the yuan was appreciated by 2percent, less than market expectations of 5 to 10 percent. REUTERS thestandard.com.hk