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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Stitch who wrote (2021)	2/10/1998 8:49:00 AM
From: Mohan Marette	Read Replies (1) \| Respond to of 9980

Stitch: Bravo! Spoken like a true Capitalist and a patriot.<gg> Listen, I agree with most, if not all, of what you are saying.I really wanted to find something in your post to argue about but you really didn't give me a cotton-pickin' chance <gg>. ................................................................. Now allow me to move on and post here something I found on the question of devaluation of the Yuan. Tuesday February 10, 5:47 am Eastern Time China might devalue in 1999, economist says By Peter Humphrey HONG KONG, Feb 10 (Reuters) - China will probably devalue its currency in 1999, but it will hold off as long as possible to avoid igniting fresh chaos in Asia's financial markets or hurting Hong Kong's economy, a China expert said on Tuesday. ''It probably won't happen until sometime in 1999, partly because of fears of a round of competitive devaluations (in Asian currencies),'' Ken Davies, regional chief economist of the Economist Intelligence Unit (EIU), told a business gathering. ''When it does take place, it will be late and fairly small,'' Davies said. It would be ''in the order of five or 10 percent.'' There has been intense speculation in recent months that China will be forced to devalue its renminbi, or yuan, currency to bolster exports against competition from countries elsewhere in the region with cheaper currencies. Asia has seen a round of deep devaluations over the past half year sparked by the financial crisis in countries such as Indonesia, Thailand and Malaysia. Davies said the prevailing logic for the time being was that ''a renminbi devaluation at the moment would be crazy.'' "China is basically safe from contagion," he said. ''To devalue in competition with the Thai baht or the Indonesian rupiah would be to stimulate just another bout of competitive devaluations.'' But there is tremendous pressure for devaluation in China from export-oriented state-owned enterprises, he said. Davies said that while a devaluation was unlikely in 1998, it was likely to happen at some time. ''At some stage it will be forced on the Chinese government by a shrinking trade surplus,'' he said. China's trade surplus swelled to more than US$40 billion in 1997, but Davies said this would shrink in 1998, with Southeast Asia now a cheaper export base and foreign imports competing in China's domestic market with locally made goods. Davies told the gathering that China could probably afford to lose some of its exports and have a smaller surplus, although it would not want to see a trade deficit. Davies said China might have struck a deal with U.S. Trade Representative Charlene Barshefsky, possibly an understanding that Beijing would not devalue soon and that in return the United States would not toughen its stance on China's long-delayed entry into the World Trade Organisation (WTO). Another reason for China to delay a devaluation was to avoid damaging its Hong Kong Special Administrative Region, which has already been badly bruised by speculative attacks on its currency, and has been forced to push up interest rates to defend its so-called dollar peg. The Hong Kong dollar is linked to the U.S. dollar, and the peg is seen by the local central bank, the Hong Kong Monetary Authority, as a mainstay of Hong Kong's economic stability. But the Hong Kong economy is also tightly integrated with the vast Chinese hinterland, and where the renminbi goes, the Hong Kong dollar is likely to follow. ''I would expect over the next two years people will start to consider an alternative to the linked rate,'' Davies said. ''When eventually China does devalue it will have to do so in consultation with the Hong Kong Monetary Authority,'' he said.