Yuan breaks 7 mark against US dollar

(Xinhua)
Updated: 2008-04-10 09:51

 

China’s currency, the yuan, was set to trade at 6.992 yuan against the US dollar on Thursday, breaching the 7-yuan mark for the first time since the government unpegged it from the dollar in 2005.

Following an overnight fall of the dollar, the central parity rate of the yuan, or renminbi, gained 105 basis points to 6.992 yuan against the dollar on Thursday, according to the China Foreign Exchange Trading System.

Shen Minggao, an economist at Citigroup in Beijing, said that like many economists, he was not surprised to see the yuan to break the 7-yuan mark.

“It was quite natural,” he said, citing the dollar’s fall against other major currencies, especially the euro, since the second half of last year along with an unfolding US credit crisis plaguing the US economy.

The yuan has gained 4.47 percent this year based on Thursday’s trading price, or 15.99 percent since the new currency regime was imposed in July 2005.

The yuan’s gain amounted to 18.27 percent from 8.2765 yuan against the dollar before the new currency regime was adopted.

Zhuang Jian, a senior economist with the Asian Development Bank mission in China, also believed a weaker US dollar was the most direct factor behind the accelerated appreciation of the yuan.

The value of Chinese currency stayed above eight to the dollar for many years before the 2005 regime reform. The yuan broke the 8-yuan threshold on May 15, 2006.

Zhuang said the breakthrough was an indication of the country’s efforts to shift from a heavy reliance on exports and investment as well as to go after a more balanced trade structure.

The quickened pace had prompted many overseas banks to raise their forecast of the yuan’s 2008 annual gain against the dollar. Last month the Standard Chartered Bank revised its prediction from 9 percent to 15 percent.

However, economists agreed that the fast pace registered in the first quarter would probably not continue throughout the year.

“We do expect continued appreciation going forward, but not quite at the breakneck pace of the first quarter,” the Switzerland-based UBS Investment Bank said in a report released on Wednesday.

The bank said the “stabilization of the US dollar in 2008″ and “greater signs of stress in the export sector” due to the US and global slowing would help moderate the pace.

Some economists even expected that the yuan may not unilaterally rise against the dollar for the rest of the year.

Shen Minggao said the appreciation pressure on the yuan would ease and the yuan may even depreciate against the dollar, once the dollar became stronger.

Tan Yaling, a research analyst with the Bank of China, also expected the dollar to rebound in the second half, and said the 2008 US presidential election could be a plus to making the dollar stronger.

She continued to anticipate that the yuan would continue to appreciate in the first half, but would report falls against the dollar from time to time in the second half as the dollar rebounded.

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PBOC chief treads with caution on interest rate

By Dong Zhixin (chinadaily.com.cn)
Updated: 2008-03-06 12:17

China’s top banker refused to rule out the possibility of further interest rate hikes on Thursday, while pledging to be cautious in using this monetary tool.”There is definitely room for further increases, in my personal opinion,” said Zhou Xiaochuan, governor of the People’s Bank of China, the central bank, at a press conference on the sidelines of the annual session of the country’s top legislature.

However, regulators have to weigh the advantages against the disadvantages before taking such a move, Zhou said. “The timing and the scale of the adjustment are also an art.”

Zhou admitted that the recent aggressive rate cuts in the United States are restricting his agency’s ability in raising the cost of capital.

The opposite direction in interest rate movements in the two countries is expected to attract more hot money into China, complicating the country’s efforts to keep its economy from overheating and tame inflation.

“This is just part of the influences, and we also have domestic considerations,” he said, pointing to the boost of domestic consumption and the development of the capital market.

China has been endeavoring to spur the Chinese to spend more so as to reduce its over-reliance on investment and exports for economic growth.

“We have to consider and measure the impact of interest rate changes on domestic demand,” Zhou said, adding that regulators hope to cut savings rate, which stays high in the country. In theory, a lower interest rate will help push the consumers to increase consumption.

Interest rate policies will also affect the development of the capital market, as well as the proportion of direct financing, Zhou said.

When the interest rates are low, the citizens tend to look to the capital market for attractive products, thus helping adjust the proportion between direct and indirect financing, Zhou said. “The country should redouble its efforts in developing the capital market and encourage direct financing.”

Premier Wen Jiabao pledged to follow a tight monetary policy on Wednesday in his policy speech to keep inflation in check and prevent the economy from overheating.

The Consumer Price Index, a barometer of inflation, jumped an 11-year high of 7.1 percent in January on rocketing food prices. The world’s fourth largest economy expanded 11.4 percent last year, the sixth consecutive year of double-digit growth.

In response, the central bank raised interest rates six times and the bank reserve requirement 11 times since the start of 2007.
 

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US should ease hi-tech export bar

By Xin Zhiming (China Daily)
Updated: 2008-01-10 09:55

A top Chinese official yesterday said the United States should make its export policy more open to help balance the Sino-US trade gap.

The strict regulation on hi-tech exports from the US is one of the reasons for the country’s trade deficit with China, Wang Chao, assistant minister of commerce, said at the US-China Clean Energy Dialogue. Expanded hi-tech exports from the US will ease the gap, he added.

Yao Wenping, vice-president of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME), agreed. “Every year, many Chinese enterprises want to import hi-tech materials and equipment from the US, but encounter obstacles.”

The US complains about the huge trade deficit with China – in the first 11 months of 2007, it amounted to $142.22 billion. This has put pressure on China to take various measures, such as appreciating the yuan, to narrow the gap.

China has taken a series of measures, such as reducing and abolishing its export tax rebates for many products, to dampen exports and encourage imports.

Analysts said if the US is more open in its hi-tech export policy, things will improve. The US, instead, alleges that China might have “dual uses” for some hi-tech products and made a new rule in June that expanded licensing requirements for a longer list of items.

Analysts say the US overreacted since many of the products that China wants are simply for civilian purposes.

Clean energy could be a field where the US can make more efforts to ease its export controls to help balance Sino-US trade and promote healthy economic and trade exchanges between the two sides, said CCCME’s Yao. “Products in this field are purely for civilian use.”

Every year Chinese enterprises import huge amounts of solar-energy materials, equipment and technologies from the US, she said.

China’s solar photovoltaic companies have grown fast in recent years. There are 50 to 60 such firms, mostly privately owned, said Yao.

Yao estimated that this year, the value of clean-energy technology procurement and cooperation between Chinese and US firms could amount to $10 billion if “they did not encounter obstacles”. It could be even higher.

She said China is ready to introduce more clean-energy technologies and products from the US. In the upcoming China Import and Export Fair to be held in April, the organizers are planning to open a special area for exhibiting new clean-energy technologies and equipment from the US.

A US delegation led by David Bohigian, US assistant secretary of commerce, is now visiting Beijing. It is composed of some 17 US energy enterprises and is scheduled to meet China’s National Development and Reform Commission officials today before they leave for Guangzhou in Guangdong Province and Hong Kong.

 

CPI surge, US interest rate cuts to influence China policy

Xinhua)
Updated: 2007-12-12 21:05

China’s Central Bank governor Zhou Xiaochuan answers a question during a news conference at “The Third Strategic Economic Dialogue” Beijing December 12, 2007. [Agencies]

China’s central bank governor, Zhou Xiaochuan, said on Wednesday that surging domestic consumer prices and recent US interest rate cuts would have “considerable influence” on Chinese monetary policy.

The central bank, the People’s Bank of China (PBOC), would “seriously consider” the situation, added Zhou.

Zhou made the remarks at a news briefing on the sidelines of the Third China-US Strategic Economic Dialogue (SED) held in Beijing. The two-day event began on Wednesday.

Increases in the consumer price index (CPI) had been mainly driven by soaring food prices, Zhou said. Whether and how the CPI could be curbed through monetary policy was being studied, Zhou said, admitting that the issue could be contentious.

China’s consumer price index (CPI) for November rose 6.9 percent from a year earlier, according to statistics released from the National Bureau of Statistics (NBS) on Tuesday morning.

The figure showed that inflationary pressures were persisting, and it triggered concern about further tightening measures.

As to the recent interest rate cuts by the US Federal Reserve, Zhou said China concerns the possible indirect impact on the country, which already had excess liquidity in the capital market.

The governor also said that China backed a strong dollar and would back US efforts to recover from the sub-prime credit crisis.

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China agrees to open up financial service industry

(Xinhua)
Updated: 2007-12-13 16:30

BEIJING — China and the United States have agreed upon specific steps for foreign companies to enter China’s financial service industry following two-day high-level economic dialogues.

China said it would complete a study of foreign equity participation in the banking sector by the end of 2008 and make relevant policy recommendations.

Foreign-invested companies including banks will be allowed to issue RMB denominated stocks and bonds, while mutual funds administered by Chinese banks will be allowed to invest in the US stock market, according to a statement from the US government.

This has created new opportunities for US firms in a variety of securities business, said the statement.

But China will resume licensing of new joint-venture securities companies and allow foreign securities firms to expand their operations in China to include brokerage, proprietary trading and fund management.

Several foreign firms, including some US firms, are already in advanced stages of establishing new joint ventures, says the statement, without elaborating.

Shortly before the dialogue, China raised the quota for qualified foreign institutional investors, which allow foreign mutual funds to invest in China’s domestic stock market, from 10 billion US dollars to 30 billion US dollars.

U.S. Treasury Secretary Henry Paulson called this progress “moderate”, affirming that opening China’s financial markets to foreign competition strengthens the financial backbone of the Chinese economy. “It’s critical to China’s goals of spreading the benefits of growth to all Chinese people,” he said.

A statement from the Chinese side said the policies should be carried out in accordance with relevant prudential regulations.

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China, US work out new tasks after SED

(Xinhua)
Updated: 2007-12-13 16:07

US Treasury Secretary Henry Paulson shakes hands with Chinese Vice-Premier Wu Yi (L) during the opening of The Third Strategic Economic Dialogue in Xianghe, near Beijing, December 12, 2007.  [Agencies] 

– Further intensify dialogue and exchanges in the areas of product and consumer safety, including food, feed, and drug and medical products, through new and existing bilateral cooperation mechanisms.

– Conduct extensive cooperation over a ten-year period to address energy and the environment, advance technological innovation, adoption of highly-efficient, clean energy technology and technology in addressing climate change, and promote the sustainability of natural resources. A working group will be started in order to start planning as soon as possible.

– Meet early next year and work together to jointly promote the negotiation in the WTO on the reduction or, as appropriate, the elimination of tariffs and non-tariff barriers to environmental goods and services to achieve results as soon as possible, recognizing the urgency of environmental challenges.

– Expand cooperation on development of a detailed plan to gradually reduce the sulfur content in fuels to 50 ppm or lower and introduce corresponding advanced vehicle pollution control technology, for incorporation into China’s 12th Five Year Plan (2011-2015).

– Strengthen cooperation on construction and management of strategic oil stocks through the exchanges of information and technologies, as well as training, including cooperation with the International Energy Agency.

– Begin a high-level exchange of investment policies, practices, and climates. Intensify ongoing discussions regarding the prospects for negotiating a Bilateral Investment Treaty.

– Continue consultations in a cooperative manner on China achieving market economy status. Continue cooperation through the High Technology and Strategic Trade Working Group under the Joint Commission on Commerce and Trade by positively implementing “Guidelines for U.S.-China High  Technology and Strategic Trade Development” and taking appropriate  constructive measures and working out an action plan to expand and facilitate bilateral high-tech and strategic trade. Relevant departments of the two sides have agreed to meet or hold a digital video conference (DVC) in the field of rules of origin.

– Explore the scope of respective international obligations on transparency. Continue to exchange information on reviewing and responding to comments received during the rulemaking process. Establish a communication mechanism to exchange information regularly on the conditions, procedures and timeframes for granting administrative licenses in areas of the Chinese market of interest to the United States and areas of the  U.S. market to China.

                                                                                                                        source from Chinadaily

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Yuan gains vs greenback after US interest rate cut

By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-11-01 13:05

China’s currency rose to a new record against the greenback on Thursday after the US Federal Reserve cut the key interest rate the previous day.

Before Thursday’s trading started, the People’s Bank of China (PBOC) set the yuan central parity rate at 7.4552 relative to the US dollar. The new midpoint marked an appreciation of 0.6 percent in the past seven trading days and a 4.6 percent rise since the beginning of the year.

The hefty rise of 140 basis points over the previous session came after the Fed slashed the federal funds rate, an overnight lending rate between banks, by 25 basis points on Wednesday to prevent a slowdown in the economy.

“The rate cut further reduces the appeal of dollars and will facilitate the capital flow to emerging markets, including China,” Professor Guo Tianyong of the Central University of Finance and Economics (CUFE) told chinadaily.com.cn Thursday morning.

The weakening dollar makes China’s yuan and other world major currencies face rising pressure for appreciation.

However, China’s exchange rate formation system is still a managed floating one, Guo said, adding that the central bank has to take various factors into consideration when deciding whether to allow a faster appreciation in the coming days.

In addition to the exchange rate pressure, China faces other fallouts from the Fed move. Before Wednesday, there was wild speculation in China that the PBOC was mulling a sixth interest rate hike this year to keep the world’s fastest growing major economy from overheating.

The country’s gross domestic product grew 11.5 percent year-on-year in the third quarter, while inflation jumped 6.2 percent in September, the National Bureau of Statistics said last week.

However, “the Fed move increases the difficulty for the central bank [to raise interest rates],” said Professor Song Guoqing of Peking University. Song anticipates another rate increase this year.

Guo of CUFE shared Song’s view, saying the pressure on the central bank is growing.

But Guo deemed that the central bank has the room to raise rates, as there is still a difference between benchmark interest rates in China and the United States.

The current one-year deposit rate in China stands at 3.87 percent while the US federal funds rate is 4.50 percent after Wednesday’s cut.

Moreover, the interest spread is not the major concern for the central bank, Guo said, adding that the domestic inflationary level and asset prices are more important factors to decide policy changes.

The US rate cut also gave rise to mounting worries in China about increasing liquidity, which has pushed up housing and equity prices in the country.

Guo downplayed those concerns, saying the interest spread is not the major target of outside capital. “Whether the liquidity will increase depends mainly on the expectation of rising prices in the housing and equity market, and the renminbi appreciation.”

Zuo Xiaolei, chief economist of Galaxy Securities pointed to the pressure of increasing liquidity as capital inflow might increase, and is urging the PBOC to tighten the curb on potential hot money influx.

The Fed should have been more cautious when deciding on the rate cut, said the female economist, citing inflation and red-hot crude oil prices in the global market.

“It [the Fed] should not just consider Wall Street,” Zuo said. “All factors should be taken into account.”

In an online vote on the Wall Street Journal website, by 14:29 Thursday (Beijing Time) only 33 percent of those surveyed thought the Fed had made the right move, while 49 percent believed the rate should be left unchanged.

 

Yuan has grown more flexible

(Xinhua)
2007-10-17 14:51

China’s currency has grown more flexible with its central parity rate having gained 10.19 percent accumulatively against the US dollar as of September 30, according to statistics released at the 17th National Congress of the Communist Party of China yesterday.

China scrapped its decade-long peg to the greenback in July 2005 and linked it to a basket of currencies. The yuan is now allowed to rise or fall 0.5 percent a day against the US dollar.The central parity rate yesterday was 7.5136 yuan against one US dollar, up slightly from Monday.

China insists the revaluation of the yuan must be gradual to maintain the country’s stability economically.

In a keynote speech to the Party congress on Monday, President Hu Jintao said China would improve the yuan exchange rate system and gradually make the yuan convertible under the capital account.

 

Trade surplus likely to exceed $250b this year

(Agencies)
Updated: 2007-10-17 16:53

China’s 2007 trade surplus is likely to exceed 250 billion dollars while consumer inflation was likely to top four percent, said a central bank official.

“The major problems China’s economy is facing include overly rapid growth in investment and loan and a too-large trade surplus,” the Shanghai Securities News reported, citing Yi Gang, assistant governor of the central bank.

“To tackle the problems, we cannot solely rely on adjustments of the exchange rate,” Yi said.

The United States and other nations argue China’s yuan currency is being kept undervalued, giving Chinese exporters an unfair advantage.

China posted a trade surplus of 185.7 billion dollars for the first nine months of the year, more than the record 177.5 billion dollars for the whole 2006, according to official figures released last week.

Propelled by soaring food costs, China’s consumer price index rose 6.5 percent in August from a year earlier and was up 3.9 percent on year for the first eight months of the year.

The inflation rate for August was well above the official full-year target of 3.0 percent and the highest since December 1996.

Yi said the government would need a package of policies, including boosting domestic consumption, increasing imports, encouraging outbound investment, to resolve the imbalance in the economy.

Expanding a scheme that allows qualified domestic institutions to invest in overseas capital markets would also help address the problems, he said.

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China’s external debts reach US$327.8b

(Source: Xinhua)

Sept. 30 – Outstanding of China’s external debts rose from US$4.8 billion in six months to US$327.8 billion by the end of June 2007, according to statistics released by the State Administration of Foreign Exchange (SAFE) Saturday. The statistics showed that outstanding of China’s registered external debt in the first half of this year, which stood at US$216.7 billion, experienced first negative growth for the past five years. The SAFE declined to give further details or comments. During the period, China borrowed mid- and long-term foreign debts of US$15.37 billion, an increase of 55.6 percent, 5.49 billion dollars, over the same period last year. Meanwhile, China has paid 11 billion dollars of debt principal and 1.74 billion dollars of interest, up 31.76 percent and 55.64 percent compared with the corresponding period last year respectively.