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Old 16.03.2005, 13:26   #1
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Default An `Unexpected' Change in Yuan Isn't Imminent:

An `Unexpected' Change in Yuan Isn't Imminent: Andy Mukherjee

March 15 (Bloomberg) -- China's Premier Wen Jiabao created a minor flutter in the foreign-exchange market yesterday when he said that measures to make the pegged Chinese currency more flexible may be announced ``unexpectedly.''

After Wen made the remark at a press conference in Beijing, the yuan rose vicariously -- on forward contracts settled in U.S. dollars. Investors interpreted the premier's comment to mean that an end to the yuan's peg to the dollar may be announced any day now, though that probably wasn't the message Wen had in mind.

The U.S. wants a stronger Chinese currency in order to reduce its current account deficit from last year's record $617.7 billion, more than a quarter of which was with China. A rising yuan may also spare European and Japanese currencies, and exporters, from having to bear the entire burden of a falling dollar.

Still, Wen's hint about an unexpected move toward currency flexibility doesn't mean any softening in China's rigid stand on the issue, nor does it imply that any change in policy is imminent.

It only means that China will be more willing to take the first step when speculators are less likely to force the Chinese central bank's hand by making any small appreciation in the yuan assume the look and feel of a precursor to a big move.

So what Wen really said yesterday about the timing of a change in China's currency regime wasn't an invitation to speculators to raise their bets on yuan appreciation. In fact, the intention behind his remarks was probably just the opposite.

`Work in Progress'

``Work related to exchange rate reform is in progress,'' Wen said. ``Regarding the timing of the reform or specific measures to be adopted, maybe they'll come unexpectedly.''

It's something Wen has said before.

``It isn't possible to launch changes to the yuan when speculation is so rife,'' Wen remarked in November at a conference in Vientiane, Laos. An estimated $96 billion of speculative capital entered China last year, betting on an increase in the value of the yuan, according to Credit Suisse First Boston.

Investors yesterday bet that the Chinese currency would rise to 7.9120 against the U.S. dollar in a year if freely traded from its fixed rate of 8.2770, a gain of 4.4 percent. On March 11, the expectation was for it to strengthen to 7.9207.

Speculators Won't Give Up

Why did the market focus exclusively on a single word from Wen's statement and ignored virtually everything else the premier said on the subject? For example, Wen also said that economic stability and a healthy financial system are prerequisites for moving to a ``market-based, managed, floating exchange rate.''

Surely, those remarks point to a timeframe longer than a few months. China's economy, which expanded at a scorching 9.5 percent pace last year, is currently overheated, and its banks are still too weak to withstand a fresh round of bankruptcies resulting from a stronger currency and loss of export competitiveness.

So why didn't investors believe these more substantial sections of Wen's statement? They didn't, because the flexibility road map put forth by Wen seems to suggest China can take its own time in arriving at a decision. It may no longer have that luxury.

Cost of Procrastination

If China allows its currency to rise 20 percent against the U.S. dollar now, the Chinese central bank's liabilities will exceed its assets by about $100 billion, or 7 percent of China's gross domestic product, estimates Nouriel Roubini, an economist at New York University's Stern School of Business.

That isn't a small price to pay for flexibility. However, if policy makers pursue ``stable'' economic growth by holding the yuan at its current level for three years, and if in that period China continues to accumulate $200 billion in foreign reserves each year -- about the same as the $207 billion it added in 2004 - - an eventual 30 percent appreciation will cause a $300 billion dent in the central bank's balance sheet, Roubini says.

That's about a fifth of China's $1.4 trillion gross domestic product. ``If China needs to have a capital loss of 20 percent of GDP to get 9 percent economic growth for the next three years, the cost-benefit analysis is not in favor of pegging,'' Roubini says.

Inflation Perks Up

Then, there's the threat of inflation going back to last August's peak of 5.3 percent, a seven-year high. Chinese consumer prices rose an average 2.9 percent from a year earlier in the first two months of this year, accelerating 2.4 percent in December.

If currency revaluation were merely a trade spat, a question of the U.S. trying to arm-twist China to its advantage, one would be hesitant to test the tough-mindedness of Chinese policy makers.

However, a large number of people, both within China and outside, now believe that greater flexibility is ultimately in the country's own interest. That being so, speculators are unlikely to stop trying to shake the yuan peg. No matter what Wen says.
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Old 18.03.2005, 09:46   #2
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Этого США ждет уже 2 года. Фьючерсы уже торгуются по 7.95 на Гонг-Конгской бирже. Я предполагаю, что в этом году Китай наконец-то расширит бэнд кол****ий юаня под давлением США. Хотя кто его знает.....через месяцев эдак 6 всё станет ясно.
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Old 18.03.2005, 10:20   #3
A Deeper Kind of Slumber
 
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фьючерсы на что??
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