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Strategies & Market Trends : HONG KONG -- Ignore unavailable to you. Want to Upgrade?

To: MikeM54321 who wrote (1701)	5/27/1998 8:32:00 AM
From: Ron Bower	Read Replies (2) \| Respond to of 2951

Mike, This morning- SHANGHAI, May 27 (Reuters) - The tumbling Japanese yen threatens to put a further dent in China's exports but is unlikely to force Beijing to betray a promise not to devalue its currency, officials and dealers said on Wednesday. They said the yen's new weakness highlighted China's growing role as a linchpin for Asian financial stability. On Tuesday, U.S. Treasury Secretary Robert Rubin said China had been ''an important island of stability'' in an otherwise turbulent region. A yuan devaluation could spark a vicious new round of currency depreciations in the region and ultimately spread the Asian ''flu'' to other areas of the world, including South America. It could also knock sentiment towards the Hong Kong dollar at a time when the Chinese territory's economic growth is faltering. The Japanese yen plumbed seven year lows above 138 against the U.S. dollar on Tuesday, before gaining back some ground on Wednesday. A key factor in the sell-off was a report that Rubin would be willing to tolerate a much weaker yen. The absence of Bank of Japan intervention to stem the latest slump in the has also solidified the view that Japan has few, if any, tools left in its arsenal apart from currency depreciation to stir its economy. ''The yen's weakness is not so good for China's exports but the effect will not be too serious,'' said one foreign exchange dealer at an overseas bank in Shanghai. ''I still believe in the government's resolve not to devalue the yuan,'' he said. ''They don't want to see the yuan weaken too much since it would be bad for Hong Kong and the region.'' Chinese Minister of Finance, Xiang Huaicheng, on Tuesday joined a parade of officials pledging to draw a line in the sand over the currency. On a visit to the United States, Xiang said problems in Asia had put China's economy under enormous pressure but it was in the best interests of China and the region to maintain a stable yuan. The relative strength of the yuan has made Chinese exports look expensive in comparison to goods from other Asian nations and raised some expectations Beijing may have to devalue. However, China has been rescued by rising exports to the buoyant economies of the United States and Europe. In addition, exporters in Thailand and other Asian countries are having trouble finding working capital, making it hard for them to cash in on their currency advantages. Indonesia's economy is at a virtual standstill, and offers no threat at all to China. But China is still struggling to meet an 8.0 percent target for annual gross domestic product growth this year, against 8.8 percent in 1997, due to the Asian financial crisis. ''A falling yen could affect some of China's exports,'' said an economist at the Bank of China's International Financial Research Institute in Beijing. ''In fact, exports to Japan and other Asian countries have already declined, while exports to Europe and the United States have picked up,'' he added. ''I can't see any possibility that the yuan can't maintain its current exchange rate.'' As an export market, Japan is less important to China than the United States and Europe. And there is limited overlap in the exports of China and Japan. Chinese exports are dominated by light industrial goods while Japan is strong in high-technology. The weakness of the yen had at least one bonus for China -- easier repayment of hefty Japanese government and commercial loans, officials said. ''The sliding yen will have an impact on China's foreign debts, because about 25 percent of China's outstanding foreign debts are now dominated in Japanese yen,'' said an official from the State Administration of Foreign Exchange. "It will be easier for China to repay yen debts." China's external debt is now at around $130 billion. An economist at the State Administration of Foreign Exchange said roughly 25 percent of that debt was denominated in yen. The yuan closed up against the Japanese yen on Wednesday at 6.0088 to 100 yen from 6.0364 on Tuesday. ''There is no direct impact on the yuan, said a foreign exchange dealer at the Bank of China in Beijing. ''The yuan is unlikely to depreciate within this year.''