China currency update and economy.
Zead:
If the Yuan is devalued (unlikely any time soon in my opinion) it could increase the cost of PCs a bit for the Chinese consumer, by how much will only be mere speculation at this point.
Economic indicators.
Chinese economy doesn't look too troublesome to me.
January -China Statistics
GDP +7.6 Q3
Consumer Prices - 1.2 Nov
Trade Balance +43.2 Oct
Current Account +29.7 1997
Foreign Reserve 143.7 Oct
Exchange Rate 8.28 per US$
Interest Rate 6.60%
Stock Market 1,258.8
Here is a recent article regarding the subject.
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(Courtesy:
Unfounded Rumors Of Chinese Currency Devaluation Cause Havoc On World Markets
(1/25/1999)
Global financial markets were rocked on Monday after an official government publication, China Daily Business Weekly, published on January 24 the statement attributed to a Bank of China economist, Mr. Wu Nianlu, that floating the renminbi, China's currency, "would not definitely be a bad thing." Apart from Wu's remarks being quoted out of context, there are other economic and political reasons why China will not devalue its currency anytime soon.
Mr. Wu was speaking at an academic conference of economists in Beijing. He is vice-chairman of the China Society of International Finance, which is an academic and professional association, rather than a policy-making body. Wu was formerly a research fellow at the International Finance Institute affiliated with the Bank of China. The Bank of China is one of the four major state-owned commercial banks under the direct control of the People's Bank of China, China's central bank.
Beijing sources confirmed that Mr. Wu was not speaking in any official capacity. However, the fact that his remarks appeared in one of the government's state-run newspapers, was taken by world markets to indicate a subtle change in official monetary policy, and a sign of an impending devaluation of the renminbi.
The stock markets in Indonesian, Bangkok, and Mexico all dropped during trading hours Monday. The currency of the three countries also weakened by fears of a RMB devaluation. Only last week, global markets saw Brazil's currency, the real, devalue and the country's central bank governor resign. China's Finance Minister Xiang Huaicheng was quick to respond last week to the emerging developments half a world away. He said, "We have noted the concern over potential impacts, but we believe the effects from the Brazilian situation will not be as large as the 1997 Asian financial crisis."
A senior economist with the Bank of China International in London, Mr. Pu Yonghao, told ChinaOnline "from a purely economic viewpoint, it is a highly unlikely scenario that China would devalue its currency." The principal cause of the slump in China's exports, he noted, was not high Chinese prices, but a weak demand in Southeast Asian countries due to their financial crises. Even if China devalued the RMB, it would not gain much on the export side. China has approximately US$50 billion in external debt, roughly one-third of its foreign currencies, and a devaluation would drive up the cost to China of this external debt. Mr. Pu noted that different models could be used to evaluate the relative value of the RMB, e.g. capital flows, but he believes the RMB may be slightly undervalued against the U.S. dollar. ChinaOnline's blackmarket currency reports show the dollar dropping sharply against the RMB in mid-January.
China has closely watched Thailand's devaluation and the consequences for its exports. It seems the lesson China drew from Thailand's experience is that devaluation does not help exports at all. Thailand devalued its currency by more than 40%, but its exports dropped also, by about 4%.
Today China announced that it is increasing its export tax rebates across the board, with the exception of weapons and livestock. China effectively used this approach in 1998 to boost its exports and maintain its competitiveness. Some argued it was de facto devaluation of the RMB. If this is the case, then why does China need to both devalue its currency directly and increase export tax rebates at the same time? Especially when it is in a better financial situation, with more foreign reserves and maintaining a large trade surplus.
On the political side, China's political and economic leaders, including President Jiang Zemin and Premier Zhu Rongji, have repeatedly pledged that the RMB would not be devalued. As recently as January 25, Premier Zhu repeated to his Laotian counterpart the pledge to keep the RMB firm in 1999, according to a brief broadcast on China's state television. On the technical level, possible devaluation is an issue within the jurisdiction of China's central bank, The People's Bank of China, under Dai Xianglong. Mr. Dai and his subordinates have also stated time and again over the past 12 months that China will not devalue its currency.
Given China's centralized decision-making process, tight controls on foreign exchange in its capital accounts, and its neighbors' experiences with devaluation, clearly something much more serious and significant than just rumors is needed to justify devaluation in the near term.
(ChinaReporter/ChinaOnline)
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China's Reserves Grew in 1998
1/13/99
BEIJING, CHINA - China's broad measure of money supply, M2, rose 15.3% last year to 10.450 trillion yuan ($1.262 trillion), according to People's Bank of China figures.
China's narrow measure of money supply, M1, increased 11.9% to 3.895 trillion yuan, while cash in circulation, or M-0, for the period grew 10.1% to 1.120 trillion yuan, said the bank's report, which was released Tuesday through Xinhua news agency.
The report also said China's foreign-exchange reserves totaled $144.96 billion at the end of 1998, an increase of $5.07 billion from 1997. China's foreign reserves totaled $144.59 billion at the end of November.
The definition of M1 used in China is cash in circulation plus all demand deposits in banks. M2 consists of M1 plus savings, time and other types of deposits.
China's money supply growth fell within government targets for the year and was instrumental in supporting economic growth, Xinhua said.
Total outstanding loans at China's financial institutions reached 8.652 trillion yuan by the end of 1998, up 15.5% from 1997, Xinhua said.
Among these, outstanding loans at state banks rose 15.4% to 6.844 trillion yuan.
Financial institutions extended 1.149 trillion yuan in new loans during 1998, an increase of 77.84 billion yuan, or 7.3%, from 1997.
Loans for infrastructure projects reached 236.46 billion yuan, an increase of 122.71 billion yuan, or 108%, from 1997, the report said. The notable increase in infrastructure loans reflected government policies to invest more in public works projects to fuel economic growth, it said.
Officials last year pledged to spend $1.2 trillion on infrastructure and other fixed-asset investment over three years to stimulate domestic demand.
Total outstanding deposits in 1998 rose 16.1% on the year to 9.570 trillion yuan. Total new deposits reached 1.340 trillion yuan in 1998, an increase of 43.87 billion yuan, or 3.4%, from 1997.
Total outstanding corporate deposits grew 13.4% from 1997 to 3.249 trillion yuan, but new corporate deposits fell 54.9 billion yuan, or 12.3%, to 390.05 billion yuan. Individual deposits climbed 17.1% to 5.341 trillion yuan.
(source: Dow Jones Newswires)
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