exchangerates news
Tuesday, April 19, 2005
Central Bank to Keep RMB Rate Stable China will keep the exchange rate of its currency stable in the second half of this year, the central People's Bank of China said yesterday.The country will "continue to maintain the basic stability of the renminbi exchange rate" and will further improve the mechanism through which the rate is formed on the basis of the existing market-based, managed floating-rate system, the bank said in its second-quarter monetary-policy report released yesterday.The central bank's rhetoric was unchanged from its usual stance and was the latest government response towards growing international pressure to revalue the currency, also known as the yuan.The United States, Japan and South Korea have called on China to let the renminbi appreciate. They said the currency is undervalued and is increasingly making China's exports cheaper as the US dollar - to which the yuan is pegged - keeps weakening.The Chinese Government has said it will improve the rate-forming mechanism and will allow the yuan to float in a broader range but it has given no timetable for doing so.The central bank noted that, in the remainder of this year, the upward pressure on the renminbi is likely to rise further as the slow recovery of the world economy may trigger broader trade protectionism. A United Nations report on June 25 predicted the world economy would grow by 2.25 percent this year, slightly faster than the 2 percent recorded last year.The Chinese bank's report said: "The slow growth in the world economy is likely to further reinforce the international propensity for trade protectionism, which will constrain increases in China's exports and heighten the pressure for the renminbi to appreciate."The bank has already been scaling up purchases of mounting US dollar excesses in the market, largely as a result of strong export rises, to keep the yuan within its usual trading band of 8.2760 to 8.2800.Such dollar purchases have translated into fast-growing supplies of renminbi and have pushed China's money supply to levels where the likelihood of serious inflation becomes a possibility, though a remote one.The central bank also reiterated that it would maintain "a prudent monetary policy" to support economic growth, although the growth of the broad money supply M2, which covers cash in circulation and all deposits, had quickened to 20.8 percent in the first half of this year from 16.8 percent last year.But it called attention to the rapid rises in loans this year and said it would further examine the causes behind them.(China Daily August 6, 2003)China Internet Information Center
posted by eastlaw @ 10:30 PM
Ono's Theory Groundless It is ill-conceived for Japan to blame its economic slowdown on the value of yuan, the Chinese currency, said an article in the International Finance News written by Chi Hung Kwan, a senior researcher with the Japan-based Research Institute of Economy, Trade and Industry. In recent years, there has been an extremely popular opinion in the Japanese media which attributes China's economic growth and Japan's recession to the depreciation of the yuan. For example, Yoshiyasu Ono, a professor of the Japanese Osaka University, recently said as much in a fairly harsh tone in an article printed in the July 11 edition of the Nihon Keizai Shimbun. It would be understandable if such opinions had been trumpeted by an amateur, but it really is unbelievable that a noted economist could put forth such a shallow argument. In his article, Ono maintains that the strong competitiveness of Chinese firms is decided to a large extent by the changes in the exchange rate of the yuan rather than those firms' own efforts. In fact, over the past 25 years since China's adoption of the reform and opening-up programmes, the Chinese currency has fallen sharply against the US dollar either in nominal terms or in real terms that reflect the inflation gap between China and the rest of the world. However, there are a number of other developing countries in the world which have also seen their currencies depreciated. Why is it that only China that has realized so remarkable economic development? If a country could realize a fast economic growth simply by devaluing its currency, then the more than 100 developing countries in the world would easily develop into industrialized nations and the North-South problem would be settled in a single stroke. If Ono's reasoning is correct, then there is no reason for the existence of the World Bank or the Official Development Assistance plan (ODA) for developing countries. However, every economist should clearly know that there has never existed such a mechanism in the world, Chi Hung Kwan said in his article. It is a common economic theory that short-term prospects are determined by demand-related factors, while long-term economic growth is determined by supply-side factors. The fluctuation of a country's currency, like its monetary and fiscal policies, affects its economy mainly through demand. The fundamental reason why the Chinese economy has achieved a high growth rate of 9 per cent on average over the past two decades should be attributed to its supply factors. According to the economic growth theory, China's rapid economic growth over the past few years has been brought about by an increase in the input of production-related factors, such as labour and capital, and the increase of its productivity. Furthermore, China's rapid economic development should also be attributed to its institutional reforms, which have advanced the country from being self-reliant to opening up and from a planned economy to a market-oriented economy. Ono not only argues that China's economic miracle has been accomplished mainly through depreciation of its currency, but also owes Japan's economic slump to the unfair competition it faces from China. In his article, Ono asserts that the "China threat" theory, which has been very popular in Japan and the United States, stems from "China's artificial devaluating of its currency." The decrease of the exchange rate of a country's currency may possibly, over a short term, spur the development of its economy by expanding its external demands. But the real exchange rate, in the long term, will reach equilibrium with domestic prices gradually rising as time goes by, Chi Hung Kwan said. Therefore, the real exchange rate of a country's currency over the long-term is not a policy variable that can be artificially decided by the government, but is rather one endogenous variable that reflects basic economic conditions. As far as China is concerned, the long-term weakening of the Chinese currency reflects the decline in terms of trade, namely the relative price of export goods against import goods, due to the rapid increase in exports. Besides, the argument that the devaluation of the yuan has a negative impact on the Japanese economy is based on the assumption that China and Japan have similar industrial structures and have a severe competitive relationship in international market. However, the fact is that there is a clear division of labour in line with the individual comparative advantages of the two nations. China mainly focuses on labour-intensive goods and processing while Japan mainly produces technology-intensive goods. Therefore, it is obvious that the two neighbours are economically complementary rather than competitive. Under this situation, the decline of the price of imports from China, just like a decrease in oil prices, should benefit Japan's trade and boost the real incomes of the Japanese people. There have been arguments that Japan's failure to extricate itself from its economic recession is attributable to its high production costs; such a situation, if left unresolved, will result in Japan's disadvantage in competition with China, which will further dampen the country's economy and lead to its eventual downfall. Such an argument is nothing but paranoia. Ono drew the wrong conclusion by misapplying the Keynesian model, which is valid in analyzing short-term economic development trends, to explaining the issue of long-term economic growth. In fact, there are many other economists, just like Ono, who wrongly believe that building abstract economic models, rather than conducting positive economic analysis on the basis of observing the real world, can find truth in economics. Economists should get out of their ivory towers and strive to inquire into the nature and causes of the wealth of their own countries based on the spirit of "seeking truth from facts."(China Daily August 6, 2003)China Internet Information Center
posted by eastlaw @ 10:29 PM
China Internet Information Center: "Stable RMB Exchange Rate Benefits World EconomyChinese Premier Wen Jiabao said Tuesday that the stable RMB exchange rate helps promote the economic developments of China and its neighbors, as well as the world. Wen was speaking while meeting with Citigroup Chairman Robert Rubin and its would-be CEO Charles Prince. He expounded on the Chinese government's policy on the RMB exchange rate, and said that China has taken notice of the concern of the international community on the RMB exchange rate. 'The Chinese government has always held a serious and responsible attitude towards the issue,' said Wen. He said that during the Asian financial crisis in 1997, China did not devalue the RMB and maintained its exchange rate, while many countries around China devalued their currencies. China's efforts had contributed to the stability of the economy and financial wellbeing of the region and the world, he said. A nation's exchange rate system and policy should be determined by the nation's domestic economic situation and international income and expenses, the premier said. 'A regulated, floating exchange rate system based on market supply and demand as implemented by China complies with the country's current situation.' China should further explore and improve the mechanism of China's RMB exchange rate as it goes deeper into financial reform, Wen said. The premier also exchanged views with the guests over the world economic situation and other issues of common concern. (Xinhua News Agency August 5, 2003)"
posted by eastlaw @ 10:28 PM
No Shock Therapy in China's Exchange Rate Reform A leading Chinese banking expert says China should maintain a stable exchange rate policy, warning that drastic amendments of the reform process would adversely affect the national economy. Tang Xu, director of the Graduate School of the People's Bank of China, said in an exclusive interview with Xinhua that China's exchange rate system was appropriate to the country's financial situation. The stable currency policy enabled China to successfully stabilize the Renminbi (RMB) and withstand the impact of the Asian financial crisis in 1997. To a profound extent, the stability of the exchange rate safeguarded the country's daily financial operations, stressed Tang. After 1994, fundamental changes were seen in China's foreign exchange system, as the government merged the "official" and market exchange rates into a unified one based mainly on market demand and supply, under a single, managed floating exchange rate system, Tang said. The gradual and evolutionary reform of China's exchange rate system also helped establish foreign investors' faith in the value of the RMB and consolidate their determination to boost investment in China, he said. If China freed the exchange rate, the speculative "hot money" would advance into the country's foreign exchange market and the RMB would surely fluctuate severely, Tang said. "It would be a disaster, since China's financial capability to withstand the exchange rate upheaval is so weak," Tang said, warning that the regular financial operations would be in disorder. China, unlike developed countries whose financial sectors are able to prevent and dissipate exchange rate risks, would bear too much risk to let the RMB float freely, Tang said. He suggested that China continue to focus on the establishment of risk management mechanisms within the banking system and improve corporate governance. However, Tang also agreed that a stable exchange rate did not necessarily mean a fixed one. He predicted that RMB could eventually be convertible under the capital account. "There is no timetable for realizing the RMB's convertibility under the capital account, but at the right time, there will be one," Tang said.(Xinhua News Agency August 8, 2003)China Internet Information Center
posted by Jiangyu @ 10:24 PM
WB Official: Calls to Appreciate RMB 'Groundless' The calls for China to strengthen the official currency of Renminbi are "groundless", Zhang Shengman, managing director of the World Bank, said in a speech at an international financial forum held in Shanghai. Although China's trade surplus to the United States reached about US$100 billion, China's total trade surplus was about US$30 billion, only one-fifth of the total of developing countries, said Zhang. The rapid increase of China's exports is the result of global manufacturing relocation, which means that some increased production in China is not newly-added production but was moved from Malaysia or Thailand, said Zhang. "In addition, the exports of China only account for 5 percent of the global total, so it is unbelievable that China's increasing exports caused global deflation," he said. However, Zhang suggested that some kind of mechanism for changing the exchange rate of the Renminbi be developed in the future, depending on China's economic circumstances, such as widening the fluctuating range of the Renminbi. Meanwhile, a leading Chinese banking expert says China should maintain a stable exchange rate policy, warning that drastic amendments of the reform process would adversely affect the national economy. Tang Xu, director of the Graduate School of the People's Bank of China, said that China's exchange rate system was appropriate to the country's financial situation. The stable currency policy enabled China to successfully stabilize the Renminbi and withstand the impact of the Asian financial crisis in 1997. To a profound extent, the stability of the exchange rate safeguarded the country's daily financial operations, stressed Tang. After 1994, fundamental changes were seen in China's foreign exchange system, as the government merged the "official" and market exchange rates into a unified one based mainly on market demand and supply, under a single, managed floating exchange rate system, Tang said. The gradual and evolutionary reform of China's exchange rate system also helped establish foreign investors' faith in the value of the RMB and consolidate their determination to boost investment in China, he said. If China freed the exchange rate, the speculative "hot money" would advance into the country's foreign exchange market and the RMB would surely fluctuate severely, Tang said. "It would be a disaster, since China's financial capability to withstand the exchange rate upheaval is so weak," Tang said, warning that the regular financial operations would be in disorder. China, unlike developed countries whose financial sectors are able to prevent and dissipate exchange rate risks, would bear too much risk to let the RMB float freely, Tang said. He suggested that China continue to focus on the establishment of risk management mechanisms within the banking system and improve corporate governance. However, Tang also agreed that a stable exchange rate did not necessarily mean a fixed one. He predicted that RMB could eventually be convertible under the capital account. "There is no timetable for realizing the RMB's convertibility under the capital account, but at the right time, there will be one," Tang said. (China Daily August 10, 2003)China Internet Information Center
posted by eastlaw @ 10:19 PM
China Internet Information CenterWB Official: Calls to Appreciate RMB 'Groundless' The calls for China to strengthen the official currency of Renminbi are "groundless", Zhang Shengman, managing director of the World Bank, said in a speech at an international financial forum held in Shanghai. Although China's trade surplus to the United States reached about US$100 billion, China's total trade surplus was about US$30 billion, only one-fifth of the total of developing countries, said Zhang. The rapid increase of China's exports is the result of global manufacturing relocation, which means that some increased production in China is not newly-added production but was moved from Malaysia or Thailand, said Zhang. "In addition, the exports of China only account for 5 percent of the global total, so it is unbelievable that China's increasing exports caused global deflation," he said. However, Zhang suggested that some kind of mechanism for changing the exchange rate of the Renminbi be developed in the future, depending on China's economic circumstances, such as widening the fluctuating range of the Renminbi. Meanwhile, a leading Chinese banking expert says China should maintain a stable exchange rate policy, warning that drastic amendments of the reform process would adversely affect the national economy. Tang Xu, director of the Graduate School of the People's Bank of China, said that China's exchange rate system was appropriate to the country's financial situation. The stable currency policy enabled China to successfully stabilize the Renminbi and withstand the impact of the Asian financial crisis in 1997. To a profound extent, the stability of the exchange rate safeguarded the country's daily financial operations, stressed Tang. After 1994, fundamental changes were seen in China's foreign exchange system, as the government merged the "official" and market exchange rates into a unified one based mainly on market demand and supply, under a single, managed floating exchange rate system, Tang said. The gradual and evolutionary reform of China's exchange rate system also helped establish foreign investors' faith in the value of the RMB and consolidate their determination to boost investment in China, he said. If China freed the exchange rate, the speculative "hot money" would advance into the country's foreign exchange market and the RMB would surely fluctuate severely, Tang said. "It would be a disaster, since China's financial capability to withstand the exchange rate upheaval is so weak," Tang said, warning that the regular financial operations would be in disorder. China, unlike developed countries whose financial sectors are able to prevent and dissipate exchange rate risks, would bear too much risk to let the RMB float freely, Tang said. He suggested that China continue to focus on the establishment of risk management mechanisms within the banking system and improve corporate governance. However, Tang also agreed that a stable exchange rate did not necessarily mean a fixed one. He predicted that RMB could eventually be convertible under the capital account. "There is no timetable for realizing the RMB's convertibility under the capital account, but at the right time, there will be one," Tang said. (China Daily August 10, 2003)
posted by eastlaw @ 10:18 PM
China Internet Information CenterExpert: Pressure for RMB Appreciation Ill-considered China's foreign exchange reserves have grown rapidly since the beginning of this year.The central bank has to buy hard currency on the foreign exchange market to keep the yuan, or renminbi, stable, raising money supply and fueling fears of inflation.If the People's Bank of China takes measures to ease the inflationary pressure, it will increase the pressure for renminbi appreciation.Foreign countries including Japan and the United States have repeatedly demanded that China appreciate the renminbi.But if the government appreciates the renminbi, the country's exports will be harmed.China's monetary policy and foreign exchange policy are caught in a dilemma.China has had a controlled floating exchange rate since 1994.From January 1 of 1994 to June 30 of this year, the value of renminbi compared with the US dollar appreciated about 5 percent.But the appreciation occurred mostly between January 1994 and May 1995.At that time, the band of movement for the exchange rate began to narrow.The band further narrowed to less than 0.05 percent in 1998, when the government wanted to avoid financial risks after the Asian financial crisis broke out.The controlled floating exchange rate system looks more like a fixed exchange rate system.When countries suffering economic recession hope to shift domestic problems on to other countries, they usually target countries with a fixed exchange rate system or similar system, and demand that they appreciate their currencies.China's controlled exchange rate system has become such a target.In 1997, when the Asian financial crisis occurred, many countries chose to devalue their currencies.But China decided not to devalue the renminbi.China's sacrifice contributed greatly to the stability of the world economy.The decision won high appraises not only from developing countries, but also from developed countries.With the aim of digesting and absorbing the losses brought about by the decision, the Chinese Government has carried out a pro-active fiscal policy and a sound monetary policy aimed at expanding domestic demand for more than five years.If the government decides to appreciate the yuan, it will once again give economic development a tremendous setback.Japan, which fanatically preaches for yuan appreciation, has already become a big winner from the trade surplus with China.China's trade deficit with Japan ranked fourth in 2002 and ranked third in the first five months of this year.If the yuan appreciates, China's trade deficit with Japan will further deepen.This would be unfair to China.It is also improper for the government to appreciate the yuan at a time when discussions on the issue are "hot," because the appreciation will result in a vicious circle of "appreciation leading to more appreciation."Now, China is gradually opening its capital account.The strong appreciation expectation will result in a fast inflow of hot money.If the hot money flows out again because of economic fluctuations, China's economy will be greatly hurt.The ensuing unrest in the Chinese economy would increase the instability of the world economy.Domestically, there is no need to worry about a possible overheating economy resulting from the large money supply due to the purchase of foreign exchange.The government set a target of a 0 to 1 percent rise in its inflation rate at the beginning of this year.During the first six months, the consumer price index (CPI), the key inflation gauge, was 0.6 percent, a sign of early inflation.During that period, the broader money supply grew more than 18.5 percent.But the June CPI was only 0.3 percent.With the world economy still suffering from deflation, it is still unknown whether the CPI in China will continue to pick up in the second half of this year.Appreciation of the yuan would be detrimental to keeping down inflation.During the first half of this year, China was hit seriously by the SARS (severe acute respiratory syndrome) epidemic.Industries such as tourism and catering suffered great losses.But this helped cool down a possible economic overheating.During the period, the country's exports rose 34 percent and imports increased 44.5 percent.The import growth was much faster than the export growth.Meanwhile, the SARS outbreak resulted in less trade orders from foreign countries.This will have a negative impact on exports for the second half of this year and next year.China's trade surplus is expected to fall. Foreign direct investment will continue to be stable.As a result, the fast increase in foreign exchange reserves will slow down.The easing of economic overheating and the slowdown in foreign exchange reserves will help ease the pressure for renminbi appreciation.China's current trade surplus is closely related to the country's tariff policy and the quota system.As the country has entered the World Trade Organization, trade protection will be reduced.In the coming years, it will be impossible for China to keep the trade surplus of about US$30 billion witnessed in 2002.This will help ease the internal pressure for appreciation of the yuan.Now, the impact of SARS on the Chinese economy is weakening and economic development is returning to normal.If the government continues to face appreciation pressures and the CPI reaches or surpasses the target of 1 percent, it should consider taking advantage of fiscal policy, exchange rate policy and monetary policy to build a fire wall to ease the pressure.Presently, the average tax rebate rate in China stands at 15 percent. The country's finances cannot bear that heavy burden.By the end of last year, the unpaid tax rebates to export companies reached about 247 billion yuan (US$29.8 billion).It will be difficult for the government to continue the high tax rebate rate for a long time.It has become urgent that tax rebates be reduced.A reduction in tax rebates will result in a slow growth in exports and a drop in the current account surplus.This will help ease the pressure for appreciation of the yuan and reduce the burden on the nation's finances.The author is a researcher with the Development Research Center under the State Council.(China Daily August 11, 2003)
posted by eastlaw @ 10:02 PM
China Internet Information CenterChina to Maintains Stable Currency Through Transparent Market Operations China has managed to maintain the stability of the exchange rate of its currency, Renminbi, with the US dollar through transparent market operations despite an increase in the number of transactions. Chen Lifeng, a prestigious researcher with the Shanghai-based China Foreign Exchange Center, said the combined volume of China's interbank foreign exchange deals reached a record high during the first half of this year. Transactions worth US$59 billion were completed in US dollars, Hong Kong dollars, Japanese Yen and euros. But the weighted average exchange rate of the US dollar against the yuan fluctuated slightly between 8.2775 and 8.2766 yuan. The number of foreign exchange transactions has been growing since early this year because of a rapid increase in direct foreign investment and corporate revenue from exports, said the researcher. China absorbed US$51 billion in contractual foreign investment during the first six months of the year, including US$30 billion in actual investment, up 40 percent and 34 percent, respectively, official statistics showed. China's foreign trade grew by 34 percent year-on-year in the first half year despite the outbreak of severe acute respiratory syndrome (SARS). The outside pressure on China for a stronger Chinese currency also attracted a large amount of foreign exchange, which contributed to the oversupply of foreign currency. China's trade surplus stood at US$4.5 billion during the first half of this year. But China's foreign exchange reserve increased by US$60.1 billion, compared with the US$30 billion in actual foreign investment and US$4.5 billion in trade surplus. Dealers at the foreign exchange center said the figures indicated about US$20 billion in foreign exchanges entered China's interbank market in apparent bids to speculate on possible appreciation of the Chinese currency. In order to maintain the stable exchange rate amid oversupply of foreign currency, the People's Bank of China, the country's central bank, increased its supply of Chinese currency to buy foreign currencies since early 2003. According to a monetary report published by the central bank earlier this month, the bank purchased 387.6 billion yuan (US$47.2 billion) worth of US dollars during the six month period. In the meantime, a central bank official said the bank also bought back 277.8 billion yuan (US$33.8 billion) of Chinese currency through the issuance of treasury bonds and other financial bonds. The central bank purchased US$74.2 billion in foreign exchanges using 614.2 billion yuan in 2002, or 129 percent of the added value of the Chinese currency. The State Development Bank announced recently its plan to issue its first US dollar-denominated bonds at the interbank market to financial institutions, worth 500 million US dollars. The move also constitutes part of the efforts made by the central bank to absorb the US dollar denominated capital in excessive supply at the market, a non-administrative measure to ease the pressure on the Chinese currency to appreciate, said ChenLifeng. (Xinhua News Agency August 12, 2003)
posted by eastlaw @ 10:01 PM
China Internet Information CenterStable RMB Benefits World Economy: Chinese FM A stable Chinese currency will benefit the world economy, said visiting Chinese Foreign Minister Li Zhaoxing on Monday.Li made the remarks at a press conference following his talks with Japanese Prime Minister Junichro Koizumi and Foreign MinisterYoriko Kawaguchi.Asked about his opinions on calls from the United States and Japan to demand appreciation of the Chinese currency Renminbi (RMB), Li said a country's foreign exchange rate should be determined by factors such as its own economic situation and balance of payments.The exports of China are insignificant compared with the economic aggregate of both Japan and the US, which accounted for less than 2 percent of Japan's gross domestic product (GDP).As Prime Minister Koizumi has said, the Chinese economic development has never posed a threat to Japan and will not affect its economy and the life of the Japanese people, Li noted.Li said China kept the RMB value unchanged in the 1997 Asian financial crisis, and will continue to decide the the currency policy in light of its domestic situation.(eastday.com August 12, 2003)
posted by eastlaw @ 9:59 PM
China Internet Information Center --------------------------------------------------------------------------------Suggestions to Calm RMB Revaluation Pressure Chinese experts suggested Monday that balancing trade and investment, reforming the foreign currency exchange mechanism and reducing the interest in foreign currency accounts would calm the calls to strengthen the Renminbi (RMB). Zhong Wei, director of the finance research center of Beijing Normal University, said the revaluation pressure was due to increasing Chinese exports and foreign direct investment in China. A balanced trade and investment will eliminate the pressure, Zhong said. Some experts suggested reforming the sale-and-buy mechanism of foreign currency, which now means foreign currency is bought by the government compulsively and enterprises could only reserve foreign currency amounting to 20 to 25 percent of their total exports in the previous year. An increasing gap between the interests rates of the Chinese and foreign currencies lured international hot money and Wang Yuanlong of the international finance institute of the Bank of China advised limiting the gap to between 1.8 to 2.15 percentage points. Other experts suggested the government encourage foreign institutes to issue RMB bonds and allow them to issue foreign currency bonds as well, which will hold back the inflow of hot money. The key is to set up a market-oriented RMB exchange rate mechanism and push forward the free exchange of RMB at a proper time, experts said.(Xinhua News Agency August 19, 2003)--------------------------------------------------------------------------------Copyright © China Internet Information Center. All Rights Reserved E-mail: webmaster@china.org.cnTel: 86-10-68326688
posted by eastlaw @ 9:58 PM
China Internet Information Center--------------------------------------------------------------------------------Monetary Policy Committee Suggests Stable Interest, Exchange Rates The advisory body of China's central bank suggested Monday that the interest rate and exchange rate of Renminbi should continue to remain stable. The Monetary Policy Committee of the People's Bank of China also suggested at its regular meeting for the second quarter that the market-oriented reform of interest rates should proceed in a steady way. The meeting held that so far this year China's economic development had been good despite the unexpected impact of severe acute respiratory syndrome (SARS). The central bank continued to implement prudent monetary policies and operate various financial services to fight the disease. By the end of May, the outstanding broad money (M2) was 20 trillion yuan (US$2.42 trillion), up 20.2 percent from the same period last year; outstanding loans were 14.4 trillion yuan, a rise of 1.26 trillion yuan from the beginning of the year, indicating that China's financial industry is operating smoothly, according to the meeting. The meeting analyzed the current domestic and international economic and financial situations, and discussed policy measures to be taken. Members of the committee held that China should continue the policy of expanding domestic demand, continue to implement prudent monetary policies, maintain the continuity and stability of monetary policies, adopt various monetary policy tools in a flexible way, reinforce open market operations, maintain steady growth of money supply and protect the good momentum of economic and financial development. The meeting cautioned that efforts should be made to prevent potential financial risks in the real estate sector and repetitive construction projects, step up loan risk alarm and supervision mechanisms and further rationalize loan structures, so as to prevent new financial risks. (Xinhua News Agency June 24, 2003) --------------------------------------------------------------------------------Copyright © China Internet Information Center. All Rights Reserved E-mail: webmaster@china.org.cnTel: 86-10-68326688
posted by eastlaw @ 9:57 PM
China Internet Information CenterNewspaper Commentary: No Time to Raise Renminbi's Value In an era when everybody is scrambling for a bigger market share in the global economy, to criticize a country for its foreign exchange policy and try to pressure it into raising the value of its currency, seems, to some, to be an excuse for failing to identify what is wrong in their own backyard. China, with a staggering export growth and soaring foreign exchange reserves, has recently become the target of such an accusation. As the Chinese renminbi fluctuates very narrowly around the US dollar at 8.28:1 and has gone down with the falling dollar, there is a growing chorus that the peg is unfairly helping the country gain shares in global markets and the value of the renminbi should be raised or immediately floated to let market forces decide its value. But is the peg really unfair? No. Should the value of the renminbi be artificially raised? No. Should it be floated? Yes, but not at the moment and the timetable should be decided by China alone. Critics of China's financial and trade policy often cite the country's export growth and trade surplus as evidence in support of this contention. The approach is not a sound one because these figures can not reflect what the critics believe is happening. China's powerful processing trade sector has an important role, if not a central one, in explaining why what China really earned in foreign trade is not as high as the exports and surplus figures suggest. China earns a thin profit from processing trade, with a big part of the profits generated being taken by overseas companies that put brand marks on the final products. But all these products are being tallied as originating in China. For countries that complain about trade deficits with China, it is very likely that their own companies, which earn handsome profits in China, are responsible for a share in the trade deficit. The system of statistics of some of China's trading partners, due to technical reasons, includes their imports from Hong Kong as coming from the mainland, but excludes Hong Kong when counting their exports to China. This also distorts the real picture. The US manufacturing sector often complains about the country's trade imbalance with China. In fact, China and the United States in the mid-1990s co-sponsored a team to research the trade deficit issue. The conclusion was that the deficit was greatly exaggerated due to technical reasons. But many people from the US side seem to have forgotten this conclusion or appeared to have never heard of it. Critics should also bear in mind that while China's exports increase, China's imports also jumped dramatically, and the trade surplus shrank. During the first five months of the year, both exports and imports were around US$150 billion, with a surplus of US$2.4 billion, or less than 1 per cent of the total foreign trade volume. Calculations are subject to debate not just in trade statistics. It is an even more complicated issue to calculate a reasonable exchange rate because in economics, there is no universally agreed upon method for doing this. Some US manufacturers argue the renminbi's exchange rate to the dollar is undervalued by some 40 per cent, but never explain how they arrived at this figure. Their most frequently used evidence is China's great volume of exchange reserves. But a close study on how these reserves were accumulated will indicate that it is not a sound basis for advocating a renminbi appreciation. In fact, the reserves were accumulated under a distorted supply-demand system, a legacy of a rigid foreign exchange control system. Hard currency earned by exporters still has to be sold to banks, while the demand for foreign currency is very much suppressed in a tradition that highlights the fear of wasting precious financial resources. The need to safeguard foreign exchange reserves was reinforced during, and in the wake of, the 1997-99 Asian financial crisis, when the reserves acted like a dyke keeping the floods of financial danger away from China. If all the domestic needs of foreign currencies were met, the reserves would be much lower today. Many economists agree that the most effective standard for the "correct" exchange rate of a currency is whether the country feels comfortable with it, which means whether it promotes sound economic growth, a reasonable international balance of payments and a favourable employment level. China feels comfortable with its current exchange rate and it should be so maintained in the near future. And China has the right to decide its exchange rate policy and no international agreement forbids that. Nevertheless, China, in pursuit of a more mature market economy, has said its goal is to have a more flexible exchange administration system and eventually to float the renminbi to let market forces decide its value. But it should be a gradual process. Things could be done in the process that include allowing exporters to retain an increasing part of foreign currency earnings, relaxing the control on foreign exchange demand and letting the renminbi float in a bigger range than its current level. But neither Chinese banks nor enterprises have yet developed the necessary capability to deal with a more flexible exchange rate system. So the timing, at the moment, is certainly not right for making major changes. And it is even more unreasonable to artificially raise the renminbi's exchange rate before market forces have more influence over its value. A healthy Chinese economy is a boon for the world because it generates great demand. A premature change of the exchange rate at the moment is very likely to bring financial shocks and harm the economy. Is a troubled Chinese economy a desirable thing? Just ask Boeing, Honda or Nokia. (China Daily July 1, 2003)
posted by eastlaw @ 9:55 PM
China Internet Information CenterChinese Experts: RMB Revaluation Unnecessary China should not bow to pressure from home and abroad to revalue its currency in a move to prop up a sustainable economic growth and prevent speculative hot money from international markets batting the market, warned a group of senior experts and officials. Instead, the central government should take more measures giving greater flexibility to the yuan's convertibility on the current account in a move to balance its biased international trade and ease the mounting calls for a quick revaluation of the currently strong local currency, said Li Qingyuan, a renowned economics professor with the School of Economics under Peking University. Speaking at a recent seminar held at the university, Li, also a member of the 10th National People's Congress, said that decentralizing the control under the current account includes measures to deregulate the rigidly controlled foreign exchange system, allowing more citizens to buy exchanges for traveling and the establishment of a national foreign exchange market that could eventually allow both financial enterprises and individuals to trade foreign exchanges in the market. "Given that China's foreign exchange system is still under rigid controls, the move will make China's increasing reserves more balanced," said Li. More than that, it could further power China's economic growth if Chinese enterprises are given further room to obtain foreign exchanges more freely. China's foreign exchange reserves were a record US$346.5 billion by the first half of the year -- the world's second largest stockpile after Japan's. China's years of hefty balance of payments surpluses have put pressure on the central bank as it has to buy hard currency to keep the yuan stable. But once foreign businesses further extend their presence into China market following the country's WTO (World Trade Organization) entry, China could see a downturn and even a turnaround in foreign trade, said Cao Heping, vice-dean of the school. He said the move will shrug off the growing clamor from outside for China to allow its currency, widely seen as under-valued, to strengthen and create a sound environment for China's smooth economic growth. He was echoed by Long Yongtu, former vice-minister of foreign trade and economic cooperation, who said that China's exports are taking only about 4.3 percent of the world trade, which means that China's position in the world trade scenario is still relatively modest. "China's change of currency will not change fundamentally the trade pattern of the world," said Long at a recent seminar held in Sydney. And among China's export structure, 54 percent of its total exports were being traded by foreign investors in China, said Long, thanks to China's cheaper and high-quality labor resources, which has made the country part of the world's manufacturing and supply chain. If China revalues its currency, it might become a little bit more difficult to export, and imports will become more expensive. That will also have a negative impact on the world's manufacturing chain, as China also imports a lot, said Long. "And that is why I do not believe that the kind of revaluation of China's currency would be necessary at this stage," said Long, adding that the Chinese Government's position is still to maintain a relatively stable currency exchange rate so as to keep its financial and monetary policies consistent and stable. China is now the fourth largest importer into the United States, while US manufacturers have complained that the yuan peg is pricing them out of potentially lucrative Chinese markets. According to Li's estimation, much international hot money will speed up its paces of entering China based on a speculation that the yuan will be appreciated very soon. Under the current system, the yuan is closely pegged in a narrow band between 8.2760-8.2800 per US dollar, but the yuan's forward premiums have hit historic highs in recent weeks, suggesting the market thinks a policy shift is in the offing. "The Chinese government needs to send out a clear and strong signal to pour cold water on the rampant speculation about an imminent relaxation on currency to curb such a threat to China's smooth economic growth," said Li. Agreeing with Chinese scholars, Stephen Roach, chief economist with Morgan Stanley, also refuted that China should be blamed for the world economic downturn and needs to adjust its currency. "It is not uncommon for weakened economies to point the finger somewhere else. China has now emerged as the leading scapegoat in this dysfunctional world," said Roach, at a recent press conference held here last week. By pegging its currency to an increasingly weaker US dollar, most believe that China is now getting an unfair competitive assist. If it would only revalue the renminbi, goes the argument, the rest of the world would then have more of a chance. "China's competitive prowess, I respond, has little to do with currency. China competes mainly on the basis of labor costs, technology, infrastructure, human capital, and its passion and commitment to reform. An opening of its capital account and floating of the renminbi will occur only when China has made more progress on the road to financial sector reform," said Roach. "Just as China has to learn to live with the rest of the world, the world has to learn to live with China. As I see it, by focusing on a scapegoat such as China, Europe and Japan are both showing signs of how desperate their own economies really are," Roach said. He was echoed by Xiao Guoliang, another economics professor at Peking University, who said some developed countries still retain a cold-war mentality. "They are sick, why let China take the pills?" asked Xiao. However, despite recent overwhelming calls for resistance to yuan revaluation, analysts say the government is exploring ways to make the currency more flexible by widening the band in the long run. China will step up reforms of its foreign exchange system to cope with changes nearly a decade after a sweeping overhaul of the system, the top foreign exchange official was quoted saying recently. "Huge changes have taken place in China's foreign exchange picture 10 years after the reform of the foreign exchange system in 1994. It's at a new starting point," Guo Shuqing, director of the State Administration of Foreign Exchange (SAFE), was quoted as saying in a statement on SAFE's website. （China Daily July 21, 2003）
posted by eastlaw @ 9:55 PM
Sunday, April 17, 2005
Sohu-China-WTO
posted by eastlaw @ 11:53 AM
国企产权改革大讨论
posted by eastlaw @ 11:49 AM
Google Toolbar Installed
posted by eastlaw @ 10:25 AM
Saturday, January 29, 2005
Future Development of the RMB Exchange Rate (tdctrade.com)
Central Bank to Keep RMB Rate Stable China will keep the exchange rate of its currency stable in the second half of this year, the central People's Bank of China said yesterday.The country will "continue to maintain the basic stability of the renminbi exchange rate" and will further improve the mechanism through which the rate is formed on the basis of the existing market-based, managed floating-rate system, the bank said in its second-quarter monetary-policy report released yesterday.The central bank's rhetoric was unchanged from its usual stance and was the latest government response towards growing international pressure to revalue the currency, also known as the yuan.The United States, Japan and South Korea have called on China to let the renminbi appreciate. They said the currency is undervalued and is increasingly making China's exports cheaper as the US dollar - to which the yuan is pegged - keeps weakening.The Chinese Government has said it will improve the rate-forming mechanism and will allow the yuan to float in a broader range but it has given no timetable for doing so.The central bank noted that, in the remainder of this year, the upward pressure on the renminbi is likely to rise further as the slow recovery of the world economy may trigger broader trade protectionism. A United Nations report on June 25 predicted the world economy would grow by 2.25 percent this year, slightly faster than the 2 percent recorded last year.The Chinese bank's report said: "The slow growth in the world economy is likely to further reinforce the international propensity for trade protectionism, which will constrain increases in China's exports and heighten the pressure for the renminbi to appreciate."The bank has already been scaling up purchases of mounting US dollar excesses in the market, largely as a result of strong export rises, to keep the yuan within its usual trading band of 8.2760 to 8.2800.Such dollar purchases have translated into fast-growing supplies of renminbi and have pushed China's money supply to levels where the likelihood of serious inflation becomes a possibility, though a remote one.The central bank also reiterated that it would maintain "a prudent monetary policy" to support economic growth, although the growth of the broad money supply M2, which covers cash in circulation and all deposits, had quickened to 20.8 percent in the first half of this year from 16.8 percent last year.But it called attention to the rapid rises in loans this year and said it would further examine the causes behind them.(China Daily August 6, 2003)China Internet Information Center
posted by eastlaw @ 10:30 PM
Ono's Theory Groundless It is ill-conceived for Japan to blame its economic slowdown on the value of yuan, the Chinese currency, said an article in the International Finance News written by Chi Hung Kwan, a senior researcher with the Japan-based Research Institute of Economy, Trade and Industry. In recent years, there has been an extremely popular opinion in the Japanese media which attributes China's economic growth and Japan's recession to the depreciation of the yuan. For example, Yoshiyasu Ono, a professor of the Japanese Osaka University, recently said as much in a fairly harsh tone in an article printed in the July 11 edition of the Nihon Keizai Shimbun. It would be understandable if such opinions had been trumpeted by an amateur, but it really is unbelievable that a noted economist could put forth such a shallow argument. In his article, Ono maintains that the strong competitiveness of Chinese firms is decided to a large extent by the changes in the exchange rate of the yuan rather than those firms' own efforts. In fact, over the past 25 years since China's adoption of the reform and opening-up programmes, the Chinese currency has fallen sharply against the US dollar either in nominal terms or in real terms that reflect the inflation gap between China and the rest of the world. However, there are a number of other developing countries in the world which have also seen their currencies depreciated. Why is it that only China that has realized so remarkable economic development? If a country could realize a fast economic growth simply by devaluing its currency, then the more than 100 developing countries in the world would easily develop into industrialized nations and the North-South problem would be settled in a single stroke. If Ono's reasoning is correct, then there is no reason for the existence of the World Bank or the Official Development Assistance plan (ODA) for developing countries. However, every economist should clearly know that there has never existed such a mechanism in the world, Chi Hung Kwan said in his article. It is a common economic theory that short-term prospects are determined by demand-related factors, while long-term economic growth is determined by supply-side factors. The fluctuation of a country's currency, like its monetary and fiscal policies, affects its economy mainly through demand. The fundamental reason why the Chinese economy has achieved a high growth rate of 9 per cent on average over the past two decades should be attributed to its supply factors. According to the economic growth theory, China's rapid economic growth over the past few years has been brought about by an increase in the input of production-related factors, such as labour and capital, and the increase of its productivity. Furthermore, China's rapid economic development should also be attributed to its institutional reforms, which have advanced the country from being self-reliant to opening up and from a planned economy to a market-oriented economy. Ono not only argues that China's economic miracle has been accomplished mainly through depreciation of its currency, but also owes Japan's economic slump to the unfair competition it faces from China. In his article, Ono asserts that the "China threat" theory, which has been very popular in Japan and the United States, stems from "China's artificial devaluating of its currency." The decrease of the exchange rate of a country's currency may possibly, over a short term, spur the development of its economy by expanding its external demands. But the real exchange rate, in the long term, will reach equilibrium with domestic prices gradually rising as time goes by, Chi Hung Kwan said. Therefore, the real exchange rate of a country's currency over the long-term is not a policy variable that can be artificially decided by the government, but is rather one endogenous variable that reflects basic economic conditions. As far as China is concerned, the long-term weakening of the Chinese currency reflects the decline in terms of trade, namely the relative price of export goods against import goods, due to the rapid increase in exports. Besides, the argument that the devaluation of the yuan has a negative impact on the Japanese economy is based on the assumption that China and Japan have similar industrial structures and have a severe competitive relationship in international market. However, the fact is that there is a clear division of labour in line with the individual comparative advantages of the two nations. China mainly focuses on labour-intensive goods and processing while Japan mainly produces technology-intensive goods. Therefore, it is obvious that the two neighbours are economically complementary rather than competitive. Under this situation, the decline of the price of imports from China, just like a decrease in oil prices, should benefit Japan's trade and boost the real incomes of the Japanese people. There have been arguments that Japan's failure to extricate itself from its economic recession is attributable to its high production costs; such a situation, if left unresolved, will result in Japan's disadvantage in competition with China, which will further dampen the country's economy and lead to its eventual downfall. Such an argument is nothing but paranoia. Ono drew the wrong conclusion by misapplying the Keynesian model, which is valid in analyzing short-term economic development trends, to explaining the issue of long-term economic growth. In fact, there are many other economists, just like Ono, who wrongly believe that building abstract economic models, rather than conducting positive economic analysis on the basis of observing the real world, can find truth in economics. Economists should get out of their ivory towers and strive to inquire into the nature and causes of the wealth of their own countries based on the spirit of "seeking truth from facts."(China Daily August 6, 2003)China Internet Information Center
posted by eastlaw @ 10:29 PM
China Internet Information Center: "Stable RMB Exchange Rate Benefits World EconomyChinese Premier Wen Jiabao said Tuesday that the stable RMB exchange rate helps promote the economic developments of China and its neighbors, as well as the world. Wen was speaking while meeting with Citigroup Chairman Robert Rubin and its would-be CEO Charles Prince. He expounded on the Chinese government's policy on the RMB exchange rate, and said that China has taken notice of the concern of the international community on the RMB exchange rate. 'The Chinese government has always held a serious and responsible attitude towards the issue,' said Wen. He said that during the Asian financial crisis in 1997, China did not devalue the RMB and maintained its exchange rate, while many countries around China devalued their currencies. China's efforts had contributed to the stability of the economy and financial wellbeing of the region and the world, he said. A nation's exchange rate system and policy should be determined by the nation's domestic economic situation and international income and expenses, the premier said. 'A regulated, floating exchange rate system based on market supply and demand as implemented by China complies with the country's current situation.' China should further explore and improve the mechanism of China's RMB exchange rate as it goes deeper into financial reform, Wen said. The premier also exchanged views with the guests over the world economic situation and other issues of common concern. (Xinhua News Agency August 5, 2003)"
posted by eastlaw @ 10:28 PM
No Shock Therapy in China's Exchange Rate Reform A leading Chinese banking expert says China should maintain a stable exchange rate policy, warning that drastic amendments of the reform process would adversely affect the national economy. Tang Xu, director of the Graduate School of the People's Bank of China, said in an exclusive interview with Xinhua that China's exchange rate system was appropriate to the country's financial situation. The stable currency policy enabled China to successfully stabilize the Renminbi (RMB) and withstand the impact of the Asian financial crisis in 1997. To a profound extent, the stability of the exchange rate safeguarded the country's daily financial operations, stressed Tang. After 1994, fundamental changes were seen in China's foreign exchange system, as the government merged the "official" and market exchange rates into a unified one based mainly on market demand and supply, under a single, managed floating exchange rate system, Tang said. The gradual and evolutionary reform of China's exchange rate system also helped establish foreign investors' faith in the value of the RMB and consolidate their determination to boost investment in China, he said. If China freed the exchange rate, the speculative "hot money" would advance into the country's foreign exchange market and the RMB would surely fluctuate severely, Tang said. "It would be a disaster, since China's financial capability to withstand the exchange rate upheaval is so weak," Tang said, warning that the regular financial operations would be in disorder. China, unlike developed countries whose financial sectors are able to prevent and dissipate exchange rate risks, would bear too much risk to let the RMB float freely, Tang said. He suggested that China continue to focus on the establishment of risk management mechanisms within the banking system and improve corporate governance. However, Tang also agreed that a stable exchange rate did not necessarily mean a fixed one. He predicted that RMB could eventually be convertible under the capital account. "There is no timetable for realizing the RMB's convertibility under the capital account, but at the right time, there will be one," Tang said.(Xinhua News Agency August 8, 2003)China Internet Information Center
posted by Jiangyu @ 10:24 PM
WB Official: Calls to Appreciate RMB 'Groundless' The calls for China to strengthen the official currency of Renminbi are "groundless", Zhang Shengman, managing director of the World Bank, said in a speech at an international financial forum held in Shanghai. Although China's trade surplus to the United States reached about US$100 billion, China's total trade surplus was about US$30 billion, only one-fifth of the total of developing countries, said Zhang. The rapid increase of China's exports is the result of global manufacturing relocation, which means that some increased production in China is not newly-added production but was moved from Malaysia or Thailand, said Zhang. "In addition, the exports of China only account for 5 percent of the global total, so it is unbelievable that China's increasing exports caused global deflation," he said. However, Zhang suggested that some kind of mechanism for changing the exchange rate of the Renminbi be developed in the future, depending on China's economic circumstances, such as widening the fluctuating range of the Renminbi. Meanwhile, a leading Chinese banking expert says China should maintain a stable exchange rate policy, warning that drastic amendments of the reform process would adversely affect the national economy. Tang Xu, director of the Graduate School of the People's Bank of China, said that China's exchange rate system was appropriate to the country's financial situation. The stable currency policy enabled China to successfully stabilize the Renminbi and withstand the impact of the Asian financial crisis in 1997. To a profound extent, the stability of the exchange rate safeguarded the country's daily financial operations, stressed Tang. After 1994, fundamental changes were seen in China's foreign exchange system, as the government merged the "official" and market exchange rates into a unified one based mainly on market demand and supply, under a single, managed floating exchange rate system, Tang said. The gradual and evolutionary reform of China's exchange rate system also helped establish foreign investors' faith in the value of the RMB and consolidate their determination to boost investment in China, he said. If China freed the exchange rate, the speculative "hot money" would advance into the country's foreign exchange market and the RMB would surely fluctuate severely, Tang said. "It would be a disaster, since China's financial capability to withstand the exchange rate upheaval is so weak," Tang said, warning that the regular financial operations would be in disorder. China, unlike developed countries whose financial sectors are able to prevent and dissipate exchange rate risks, would bear too much risk to let the RMB float freely, Tang said. He suggested that China continue to focus on the establishment of risk management mechanisms within the banking system and improve corporate governance. However, Tang also agreed that a stable exchange rate did not necessarily mean a fixed one. He predicted that RMB could eventually be convertible under the capital account. "There is no timetable for realizing the RMB's convertibility under the capital account, but at the right time, there will be one," Tang said. (China Daily August 10, 2003)China Internet Information Center
posted by eastlaw @ 10:19 PM
China Internet Information CenterWB Official: Calls to Appreciate RMB 'Groundless' The calls for China to strengthen the official currency of Renminbi are "groundless", Zhang Shengman, managing director of the World Bank, said in a speech at an international financial forum held in Shanghai. Although China's trade surplus to the United States reached about US$100 billion, China's total trade surplus was about US$30 billion, only one-fifth of the total of developing countries, said Zhang. The rapid increase of China's exports is the result of global manufacturing relocation, which means that some increased production in China is not newly-added production but was moved from Malaysia or Thailand, said Zhang. "In addition, the exports of China only account for 5 percent of the global total, so it is unbelievable that China's increasing exports caused global deflation," he said. However, Zhang suggested that some kind of mechanism for changing the exchange rate of the Renminbi be developed in the future, depending on China's economic circumstances, such as widening the fluctuating range of the Renminbi. Meanwhile, a leading Chinese banking expert says China should maintain a stable exchange rate policy, warning that drastic amendments of the reform process would adversely affect the national economy. Tang Xu, director of the Graduate School of the People's Bank of China, said that China's exchange rate system was appropriate to the country's financial situation. The stable currency policy enabled China to successfully stabilize the Renminbi and withstand the impact of the Asian financial crisis in 1997. To a profound extent, the stability of the exchange rate safeguarded the country's daily financial operations, stressed Tang. After 1994, fundamental changes were seen in China's foreign exchange system, as the government merged the "official" and market exchange rates into a unified one based mainly on market demand and supply, under a single, managed floating exchange rate system, Tang said. The gradual and evolutionary reform of China's exchange rate system also helped establish foreign investors' faith in the value of the RMB and consolidate their determination to boost investment in China, he said. If China freed the exchange rate, the speculative "hot money" would advance into the country's foreign exchange market and the RMB would surely fluctuate severely, Tang said. "It would be a disaster, since China's financial capability to withstand the exchange rate upheaval is so weak," Tang said, warning that the regular financial operations would be in disorder. China, unlike developed countries whose financial sectors are able to prevent and dissipate exchange rate risks, would bear too much risk to let the RMB float freely, Tang said. He suggested that China continue to focus on the establishment of risk management mechanisms within the banking system and improve corporate governance. However, Tang also agreed that a stable exchange rate did not necessarily mean a fixed one. He predicted that RMB could eventually be convertible under the capital account. "There is no timetable for realizing the RMB's convertibility under the capital account, but at the right time, there will be one," Tang said. (China Daily August 10, 2003)
posted by eastlaw @ 10:18 PM
China Internet Information CenterExpert: Pressure for RMB Appreciation Ill-considered China's foreign exchange reserves have grown rapidly since the beginning of this year.The central bank has to buy hard currency on the foreign exchange market to keep the yuan, or renminbi, stable, raising money supply and fueling fears of inflation.If the People's Bank of China takes measures to ease the inflationary pressure, it will increase the pressure for renminbi appreciation.Foreign countries including Japan and the United States have repeatedly demanded that China appreciate the renminbi.But if the government appreciates the renminbi, the country's exports will be harmed.China's monetary policy and foreign exchange policy are caught in a dilemma.China has had a controlled floating exchange rate since 1994.From January 1 of 1994 to June 30 of this year, the value of renminbi compared with the US dollar appreciated about 5 percent.But the appreciation occurred mostly between January 1994 and May 1995.At that time, the band of movement for the exchange rate began to narrow.The band further narrowed to less than 0.05 percent in 1998, when the government wanted to avoid financial risks after the Asian financial crisis broke out.The controlled floating exchange rate system looks more like a fixed exchange rate system.When countries suffering economic recession hope to shift domestic problems on to other countries, they usually target countries with a fixed exchange rate system or similar system, and demand that they appreciate their currencies.China's controlled exchange rate system has become such a target.In 1997, when the Asian financial crisis occurred, many countries chose to devalue their currencies.But China decided not to devalue the renminbi.China's sacrifice contributed greatly to the stability of the world economy.The decision won high appraises not only from developing countries, but also from developed countries.With the aim of digesting and absorbing the losses brought about by the decision, the Chinese Government has carried out a pro-active fiscal policy and a sound monetary policy aimed at expanding domestic demand for more than five years.If the government decides to appreciate the yuan, it will once again give economic development a tremendous setback.Japan, which fanatically preaches for yuan appreciation, has already become a big winner from the trade surplus with China.China's trade deficit with Japan ranked fourth in 2002 and ranked third in the first five months of this year.If the yuan appreciates, China's trade deficit with Japan will further deepen.This would be unfair to China.It is also improper for the government to appreciate the yuan at a time when discussions on the issue are "hot," because the appreciation will result in a vicious circle of "appreciation leading to more appreciation."Now, China is gradually opening its capital account.The strong appreciation expectation will result in a fast inflow of hot money.If the hot money flows out again because of economic fluctuations, China's economy will be greatly hurt.The ensuing unrest in the Chinese economy would increase the instability of the world economy.Domestically, there is no need to worry about a possible overheating economy resulting from the large money supply due to the purchase of foreign exchange.The government set a target of a 0 to 1 percent rise in its inflation rate at the beginning of this year.During the first six months, the consumer price index (CPI), the key inflation gauge, was 0.6 percent, a sign of early inflation.During that period, the broader money supply grew more than 18.5 percent.But the June CPI was only 0.3 percent.With the world economy still suffering from deflation, it is still unknown whether the CPI in China will continue to pick up in the second half of this year.Appreciation of the yuan would be detrimental to keeping down inflation.During the first half of this year, China was hit seriously by the SARS (severe acute respiratory syndrome) epidemic.Industries such as tourism and catering suffered great losses.But this helped cool down a possible economic overheating.During the period, the country's exports rose 34 percent and imports increased 44.5 percent.The import growth was much faster than the export growth.Meanwhile, the SARS outbreak resulted in less trade orders from foreign countries.This will have a negative impact on exports for the second half of this year and next year.China's trade surplus is expected to fall. Foreign direct investment will continue to be stable.As a result, the fast increase in foreign exchange reserves will slow down.The easing of economic overheating and the slowdown in foreign exchange reserves will help ease the pressure for renminbi appreciation.China's current trade surplus is closely related to the country's tariff policy and the quota system.As the country has entered the World Trade Organization, trade protection will be reduced.In the coming years, it will be impossible for China to keep the trade surplus of about US$30 billion witnessed in 2002.This will help ease the internal pressure for appreciation of the yuan.Now, the impact of SARS on the Chinese economy is weakening and economic development is returning to normal.If the government continues to face appreciation pressures and the CPI reaches or surpasses the target of 1 percent, it should consider taking advantage of fiscal policy, exchange rate policy and monetary policy to build a fire wall to ease the pressure.Presently, the average tax rebate rate in China stands at 15 percent. The country's finances cannot bear that heavy burden.By the end of last year, the unpaid tax rebates to export companies reached about 247 billion yuan (US$29.8 billion).It will be difficult for the government to continue the high tax rebate rate for a long time.It has become urgent that tax rebates be reduced.A reduction in tax rebates will result in a slow growth in exports and a drop in the current account surplus.This will help ease the pressure for appreciation of the yuan and reduce the burden on the nation's finances.The author is a researcher with the Development Research Center under the State Council.(China Daily August 11, 2003)
posted by eastlaw @ 10:02 PM
China Internet Information CenterChina to Maintains Stable Currency Through Transparent Market Operations China has managed to maintain the stability of the exchange rate of its currency, Renminbi, with the US dollar through transparent market operations despite an increase in the number of transactions. Chen Lifeng, a prestigious researcher with the Shanghai-based China Foreign Exchange Center, said the combined volume of China's interbank foreign exchange deals reached a record high during the first half of this year. Transactions worth US$59 billion were completed in US dollars, Hong Kong dollars, Japanese Yen and euros. But the weighted average exchange rate of the US dollar against the yuan fluctuated slightly between 8.2775 and 8.2766 yuan. The number of foreign exchange transactions has been growing since early this year because of a rapid increase in direct foreign investment and corporate revenue from exports, said the researcher. China absorbed US$51 billion in contractual foreign investment during the first six months of the year, including US$30 billion in actual investment, up 40 percent and 34 percent, respectively, official statistics showed. China's foreign trade grew by 34 percent year-on-year in the first half year despite the outbreak of severe acute respiratory syndrome (SARS). The outside pressure on China for a stronger Chinese currency also attracted a large amount of foreign exchange, which contributed to the oversupply of foreign currency. China's trade surplus stood at US$4.5 billion during the first half of this year. But China's foreign exchange reserve increased by US$60.1 billion, compared with the US$30 billion in actual foreign investment and US$4.5 billion in trade surplus. Dealers at the foreign exchange center said the figures indicated about US$20 billion in foreign exchanges entered China's interbank market in apparent bids to speculate on possible appreciation of the Chinese currency. In order to maintain the stable exchange rate amid oversupply of foreign currency, the People's Bank of China, the country's central bank, increased its supply of Chinese currency to buy foreign currencies since early 2003. According to a monetary report published by the central bank earlier this month, the bank purchased 387.6 billion yuan (US$47.2 billion) worth of US dollars during the six month period. In the meantime, a central bank official said the bank also bought back 277.8 billion yuan (US$33.8 billion) of Chinese currency through the issuance of treasury bonds and other financial bonds. The central bank purchased US$74.2 billion in foreign exchanges using 614.2 billion yuan in 2002, or 129 percent of the added value of the Chinese currency. The State Development Bank announced recently its plan to issue its first US dollar-denominated bonds at the interbank market to financial institutions, worth 500 million US dollars. The move also constitutes part of the efforts made by the central bank to absorb the US dollar denominated capital in excessive supply at the market, a non-administrative measure to ease the pressure on the Chinese currency to appreciate, said ChenLifeng. (Xinhua News Agency August 12, 2003)
posted by eastlaw @ 10:01 PM
China Internet Information CenterStable RMB Benefits World Economy: Chinese FM A stable Chinese currency will benefit the world economy, said visiting Chinese Foreign Minister Li Zhaoxing on Monday.Li made the remarks at a press conference following his talks with Japanese Prime Minister Junichro Koizumi and Foreign MinisterYoriko Kawaguchi.Asked about his opinions on calls from the United States and Japan to demand appreciation of the Chinese currency Renminbi (RMB), Li said a country's foreign exchange rate should be determined by factors such as its own economic situation and balance of payments.The exports of China are insignificant compared with the economic aggregate of both Japan and the US, which accounted for less than 2 percent of Japan's gross domestic product (GDP).As Prime Minister Koizumi has said, the Chinese economic development has never posed a threat to Japan and will not affect its economy and the life of the Japanese people, Li noted.Li said China kept the RMB value unchanged in the 1997 Asian financial crisis, and will continue to decide the the currency policy in light of its domestic situation.(eastday.com August 12, 2003)
posted by eastlaw @ 9:59 PM
China Internet Information Center --------------------------------------------------------------------------------Suggestions to Calm RMB Revaluation Pressure Chinese experts suggested Monday that balancing trade and investment, reforming the foreign currency exchange mechanism and reducing the interest in foreign currency accounts would calm the calls to strengthen the Renminbi (RMB). Zhong Wei, director of the finance research center of Beijing Normal University, said the revaluation pressure was due to increasing Chinese exports and foreign direct investment in China. A balanced trade and investment will eliminate the pressure, Zhong said. Some experts suggested reforming the sale-and-buy mechanism of foreign currency, which now means foreign currency is bought by the government compulsively and enterprises could only reserve foreign currency amounting to 20 to 25 percent of their total exports in the previous year. An increasing gap between the interests rates of the Chinese and foreign currencies lured international hot money and Wang Yuanlong of the international finance institute of the Bank of China advised limiting the gap to between 1.8 to 2.15 percentage points. Other experts suggested the government encourage foreign institutes to issue RMB bonds and allow them to issue foreign currency bonds as well, which will hold back the inflow of hot money. The key is to set up a market-oriented RMB exchange rate mechanism and push forward the free exchange of RMB at a proper time, experts said.(Xinhua News Agency August 19, 2003)--------------------------------------------------------------------------------Copyright © China Internet Information Center. All Rights Reserved E-mail: webmaster@china.org.cnTel: 86-10-68326688
posted by eastlaw @ 9:58 PM
China Internet Information Center--------------------------------------------------------------------------------Monetary Policy Committee Suggests Stable Interest, Exchange Rates The advisory body of China's central bank suggested Monday that the interest rate and exchange rate of Renminbi should continue to remain stable. The Monetary Policy Committee of the People's Bank of China also suggested at its regular meeting for the second quarter that the market-oriented reform of interest rates should proceed in a steady way. The meeting held that so far this year China's economic development had been good despite the unexpected impact of severe acute respiratory syndrome (SARS). The central bank continued to implement prudent monetary policies and operate various financial services to fight the disease. By the end of May, the outstanding broad money (M2) was 20 trillion yuan (US$2.42 trillion), up 20.2 percent from the same period last year; outstanding loans were 14.4 trillion yuan, a rise of 1.26 trillion yuan from the beginning of the year, indicating that China's financial industry is operating smoothly, according to the meeting. The meeting analyzed the current domestic and international economic and financial situations, and discussed policy measures to be taken. Members of the committee held that China should continue the policy of expanding domestic demand, continue to implement prudent monetary policies, maintain the continuity and stability of monetary policies, adopt various monetary policy tools in a flexible way, reinforce open market operations, maintain steady growth of money supply and protect the good momentum of economic and financial development. The meeting cautioned that efforts should be made to prevent potential financial risks in the real estate sector and repetitive construction projects, step up loan risk alarm and supervision mechanisms and further rationalize loan structures, so as to prevent new financial risks. (Xinhua News Agency June 24, 2003) --------------------------------------------------------------------------------Copyright © China Internet Information Center. All Rights Reserved E-mail: webmaster@china.org.cnTel: 86-10-68326688
posted by eastlaw @ 9:57 PM
China Internet Information CenterNewspaper Commentary: No Time to Raise Renminbi's Value In an era when everybody is scrambling for a bigger market share in the global economy, to criticize a country for its foreign exchange policy and try to pressure it into raising the value of its currency, seems, to some, to be an excuse for failing to identify what is wrong in their own backyard. China, with a staggering export growth and soaring foreign exchange reserves, has recently become the target of such an accusation. As the Chinese renminbi fluctuates very narrowly around the US dollar at 8.28:1 and has gone down with the falling dollar, there is a growing chorus that the peg is unfairly helping the country gain shares in global markets and the value of the renminbi should be raised or immediately floated to let market forces decide its value. But is the peg really unfair? No. Should the value of the renminbi be artificially raised? No. Should it be floated? Yes, but not at the moment and the timetable should be decided by China alone. Critics of China's financial and trade policy often cite the country's export growth and trade surplus as evidence in support of this contention. The approach is not a sound one because these figures can not reflect what the critics believe is happening. China's powerful processing trade sector has an important role, if not a central one, in explaining why what China really earned in foreign trade is not as high as the exports and surplus figures suggest. China earns a thin profit from processing trade, with a big part of the profits generated being taken by overseas companies that put brand marks on the final products. But all these products are being tallied as originating in China. For countries that complain about trade deficits with China, it is very likely that their own companies, which earn handsome profits in China, are responsible for a share in the trade deficit. The system of statistics of some of China's trading partners, due to technical reasons, includes their imports from Hong Kong as coming from the mainland, but excludes Hong Kong when counting their exports to China. This also distorts the real picture. The US manufacturing sector often complains about the country's trade imbalance with China. In fact, China and the United States in the mid-1990s co-sponsored a team to research the trade deficit issue. The conclusion was that the deficit was greatly exaggerated due to technical reasons. But many people from the US side seem to have forgotten this conclusion or appeared to have never heard of it. Critics should also bear in mind that while China's exports increase, China's imports also jumped dramatically, and the trade surplus shrank. During the first five months of the year, both exports and imports were around US$150 billion, with a surplus of US$2.4 billion, or less than 1 per cent of the total foreign trade volume. Calculations are subject to debate not just in trade statistics. It is an even more complicated issue to calculate a reasonable exchange rate because in economics, there is no universally agreed upon method for doing this. Some US manufacturers argue the renminbi's exchange rate to the dollar is undervalued by some 40 per cent, but never explain how they arrived at this figure. Their most frequently used evidence is China's great volume of exchange reserves. But a close study on how these reserves were accumulated will indicate that it is not a sound basis for advocating a renminbi appreciation. In fact, the reserves were accumulated under a distorted supply-demand system, a legacy of a rigid foreign exchange control system. Hard currency earned by exporters still has to be sold to banks, while the demand for foreign currency is very much suppressed in a tradition that highlights the fear of wasting precious financial resources. The need to safeguard foreign exchange reserves was reinforced during, and in the wake of, the 1997-99 Asian financial crisis, when the reserves acted like a dyke keeping the floods of financial danger away from China. If all the domestic needs of foreign currencies were met, the reserves would be much lower today. Many economists agree that the most effective standard for the "correct" exchange rate of a currency is whether the country feels comfortable with it, which means whether it promotes sound economic growth, a reasonable international balance of payments and a favourable employment level. China feels comfortable with its current exchange rate and it should be so maintained in the near future. And China has the right to decide its exchange rate policy and no international agreement forbids that. Nevertheless, China, in pursuit of a more mature market economy, has said its goal is to have a more flexible exchange administration system and eventually to float the renminbi to let market forces decide its value. But it should be a gradual process. Things could be done in the process that include allowing exporters to retain an increasing part of foreign currency earnings, relaxing the control on foreign exchange demand and letting the renminbi float in a bigger range than its current level. But neither Chinese banks nor enterprises have yet developed the necessary capability to deal with a more flexible exchange rate system. So the timing, at the moment, is certainly not right for making major changes. And it is even more unreasonable to artificially raise the renminbi's exchange rate before market forces have more influence over its value. A healthy Chinese economy is a boon for the world because it generates great demand. A premature change of the exchange rate at the moment is very likely to bring financial shocks and harm the economy. Is a troubled Chinese economy a desirable thing? Just ask Boeing, Honda or Nokia. (China Daily July 1, 2003)
posted by eastlaw @ 9:55 PM
China Internet Information CenterChinese Experts: RMB Revaluation Unnecessary China should not bow to pressure from home and abroad to revalue its currency in a move to prop up a sustainable economic growth and prevent speculative hot money from international markets batting the market, warned a group of senior experts and officials. Instead, the central government should take more measures giving greater flexibility to the yuan's convertibility on the current account in a move to balance its biased international trade and ease the mounting calls for a quick revaluation of the currently strong local currency, said Li Qingyuan, a renowned economics professor with the School of Economics under Peking University. Speaking at a recent seminar held at the university, Li, also a member of the 10th National People's Congress, said that decentralizing the control under the current account includes measures to deregulate the rigidly controlled foreign exchange system, allowing more citizens to buy exchanges for traveling and the establishment of a national foreign exchange market that could eventually allow both financial enterprises and individuals to trade foreign exchanges in the market. "Given that China's foreign exchange system is still under rigid controls, the move will make China's increasing reserves more balanced," said Li. More than that, it could further power China's economic growth if Chinese enterprises are given further room to obtain foreign exchanges more freely. China's foreign exchange reserves were a record US$346.5 billion by the first half of the year -- the world's second largest stockpile after Japan's. China's years of hefty balance of payments surpluses have put pressure on the central bank as it has to buy hard currency to keep the yuan stable. But once foreign businesses further extend their presence into China market following the country's WTO (World Trade Organization) entry, China could see a downturn and even a turnaround in foreign trade, said Cao Heping, vice-dean of the school. He said the move will shrug off the growing clamor from outside for China to allow its currency, widely seen as under-valued, to strengthen and create a sound environment for China's smooth economic growth. He was echoed by Long Yongtu, former vice-minister of foreign trade and economic cooperation, who said that China's exports are taking only about 4.3 percent of the world trade, which means that China's position in the world trade scenario is still relatively modest. "China's change of currency will not change fundamentally the trade pattern of the world," said Long at a recent seminar held in Sydney. And among China's export structure, 54 percent of its total exports were being traded by foreign investors in China, said Long, thanks to China's cheaper and high-quality labor resources, which has made the country part of the world's manufacturing and supply chain. If China revalues its currency, it might become a little bit more difficult to export, and imports will become more expensive. That will also have a negative impact on the world's manufacturing chain, as China also imports a lot, said Long. "And that is why I do not believe that the kind of revaluation of China's currency would be necessary at this stage," said Long, adding that the Chinese Government's position is still to maintain a relatively stable currency exchange rate so as to keep its financial and monetary policies consistent and stable. China is now the fourth largest importer into the United States, while US manufacturers have complained that the yuan peg is pricing them out of potentially lucrative Chinese markets. According to Li's estimation, much international hot money will speed up its paces of entering China based on a speculation that the yuan will be appreciated very soon. Under the current system, the yuan is closely pegged in a narrow band between 8.2760-8.2800 per US dollar, but the yuan's forward premiums have hit historic highs in recent weeks, suggesting the market thinks a policy shift is in the offing. "The Chinese government needs to send out a clear and strong signal to pour cold water on the rampant speculation about an imminent relaxation on currency to curb such a threat to China's smooth economic growth," said Li. Agreeing with Chinese scholars, Stephen Roach, chief economist with Morgan Stanley, also refuted that China should be blamed for the world economic downturn and needs to adjust its currency. "It is not uncommon for weakened economies to point the finger somewhere else. China has now emerged as the leading scapegoat in this dysfunctional world," said Roach, at a recent press conference held here last week. By pegging its currency to an increasingly weaker US dollar, most believe that China is now getting an unfair competitive assist. If it would only revalue the renminbi, goes the argument, the rest of the world would then have more of a chance. "China's competitive prowess, I respond, has little to do with currency. China competes mainly on the basis of labor costs, technology, infrastructure, human capital, and its passion and commitment to reform. An opening of its capital account and floating of the renminbi will occur only when China has made more progress on the road to financial sector reform," said Roach. "Just as China has to learn to live with the rest of the world, the world has to learn to live with China. As I see it, by focusing on a scapegoat such as China, Europe and Japan are both showing signs of how desperate their own economies really are," Roach said. He was echoed by Xiao Guoliang, another economics professor at Peking University, who said some developed countries still retain a cold-war mentality. "They are sick, why let China take the pills?" asked Xiao. However, despite recent overwhelming calls for resistance to yuan revaluation, analysts say the government is exploring ways to make the currency more flexible by widening the band in the long run. China will step up reforms of its foreign exchange system to cope with changes nearly a decade after a sweeping overhaul of the system, the top foreign exchange official was quoted saying recently. "Huge changes have taken place in China's foreign exchange picture 10 years after the reform of the foreign exchange system in 1994. It's at a new starting point," Guo Shuqing, director of the State Administration of Foreign Exchange (SAFE), was quoted as saying in a statement on SAFE's website. （China Daily July 21, 2003）
posted by eastlaw @ 9:55 PM
Sunday, April 17, 2005
Sohu-China-WTO
posted by eastlaw @ 11:53 AM
国企产权改革大讨论
posted by eastlaw @ 11:49 AM
Google Toolbar Installed
posted by eastlaw @ 10:25 AM
Saturday, January 29, 2005
Future Development of the RMB Exchange Rate (tdctrade.com)
posted by Eastlaw at Wednesday, April 20, 2005
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