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To: Bobby Yellin who wrote (16056)	8/18/1998 8:26:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116766

China yuan unshaken by floods, but eye on Japan 05:59 a.m. Aug 18, 1998 Eastern By William Kazer SHANGHAI, Aug 18 (Reuters) - China's currency was unshaken by floods and a shock wave from Russia's rouble but currency dealers said on Tuesday the key to Beijing's exchange rate policy was the Japanese yen. China's currency, the yuan, barely blinked on the Shanghai-based China Foreign Exchange Trading System, shrugging off news of an effective devaluation of the rouble and mounting economic losses from domestic floods. Dealers said the twin blows may have raised anxiety levels in dealing rooms around the world but the real alarm bells were likely to be sounded from Japan. ''Keep your eye on the yen,'' said Li Yiyuan, an economist at Qinghua University in Beijing. ''Japan is a major trading partner and that market is important to China.'' China's Premier Zhu Rongji has pledged not to devalue, despite the loss of export competitiveness to other Asian countries benefiting from much weaker currencies. So far, Zhu has proved to have a bit more credibility than Russian President Boris Yeltsin or many Asian counterparts who have made the same claims of support for their currency only to backpedal later. ''Pressure is not as great in China as it appears to be from the outside,'' said a dealer with a Shanghai bank. ''We really don't see a devaluation of the yuan this year.'' The central bank has showed no signs of a lessening its resolve to keep the currency stable despite the latest turn of events. ''Neither the rouble nor the floods will have an impact on our currency policy,'' a central bank official told Reuters. On Tuesday, the yuan traded narrowly and finished at 8.2799 to the dollar, little changed from the 8.2798 level on Monday. Dealers said there were no signs of central bank intervention on China's tightly managed foreign exchange trading system on Tuesday despite several recent moves by the bank to shore up the local currency. They said the roubles woes no doubt would raise psychological pressure on currencies that have not buckled under global financial strains but Russia remained a minor factor in China's trade and financial picture. Meanwhile, domestic share prices steadied on Tuesday after slumping badly on Monday due to fears over the massive flooding in central and northeastern China. Analysts said they feared that the flooding would cut into economic growth, already showing signs of slowing below a targeted 8.0 percent for this year. China is seeing its exports trail off while domestic demand is sluggish -- just as it wants growth to create new jobs for millions of workers likely to be laid off in an overhaul of state industry. But analysts said China still had too much to lose from a devaluation. ''At the moment, it is not in China's interest to devalue,'' said a foreign exchange trader at a Shanghai financial institution. The greatest danger was it would risk undermining confidence in the currency, which could trigger a run on state banks, as worried citizens turn to the black market to protect their savings. It would also deal a blow to the Hong Kong dollar's peg to the U.S. dollar, a political embarrassment Beijing was eager to avoid. Moreover, it would likely trigger another round of competitive devaluations around Asia and have little benefit to China's exports, analysts said. ''A devaluation is not a magic pill,'' said a foreign exchange dealer with a domestic financial institution. For the time beiing, Beijing could wield its mighty club of $140 billion in foreign exchange reserves to defend its interests. But Beijing is looking to Japan to play a role in an Asian recovery and it wants a stronger yen to pull in imports from China and the rest of the region. Beijing has been irked that Japan does not seem to be willing to shoulder what it views as a fair share of the regional economic burden. Some dealers said that China could take another look at the gains and losses from a change in policy next year. ''If the yen weakens substantially, authorities could review their options sometime next year,'' said a trader. Copyright 1998 Reuters Limited.