Strong greenback hits yuan
September 8, 2008
THE yuan ended weaker last week but foreign exchange dealers viewed the drop not so much as a change in China’s currency stance but more on a stronger United States dollar.
The Chinese currency ended at 6.8422 against the US dollar last Friday, weaker than 6.8350 a week earlier, according to the China Foreign Exchange Trade System.
It appeared that the Chinese authorities have changed their currency stance, maybe to address complaints by exporters who blame the stronger yuan for their business slowdown.
However, it was not the case, as shown in the yuan against the euro. The yuan has added almost 10 percent against the euro since the start of July. The market said the stronger greenback may be a reason for the yuan’s weakening.
Source: Shanghai Daily
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Renminbi’s Rise: Necessary ?
September 1, 2008
One of the most infuluantial voices in making China’s economic policies said that “China did not need to accelerate the appreciation of the renminbi against the US dollar, according to an article published in the Financial Times.
The main point needs to be highlighted in the article is:
- China doesn’t need appreciation of Renminbi anymore because the Dollar will not weaken very much, and may get stronger.
The Chinese currency has appreciated by 7 per cent against the US dollar this year. But the pace of appreciation has slowed sharply over the last two months. In August, the renminbi even depreciated slightly against the dollar. This is only the second month that this has happened since China moved away from its dollar peg in 2005.
This year, China’s trade surplus is decreasing, but foreign reserve accumulation is increasing.
According to the FT, Mr Cheng Siwei, vice-chairman of the standing committee of National People’s Congress, warned that the strength of domestic consumption could not compensate for the weakness of investment and net exports. Although the government had introduced measures in July to loosen credit and reduce export taxes, “we need to consider fiscal policy action as well”, he said.
“Government revenue in-creased by 33.3 per cent in the first half of this year. But we have many big expenses like the Olympics and the aftermath of the earthquake. So I don’t think we can put a big sum of money to expand public spending. But we have put Rmb3.5bn ($512m) into subsidising small and medium-sized enterprises.”
You can read the original article: “Renminbi rise ‘less necessary’” By Martin Wolf in London and Geoff Dyer in Beijing.
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Timeline of China’s fiscal and monetary policy since 1995
August 25, 2008
As China’s Currency regulations gain more importance and directly affect quotations, Here are some facts about China’s fiscal and monetary policies from the present back to 1995.
– Tight monetary policy (current)
Earlier this year, facing pressure from surging inflation, a resurgence in fixed-asset investment and excessive lending and liquidity, China decided to shift its monetary policy from “prudent” to “tight”.
Tight policy has included raising commercial banks’ reserve-requirement ratios, allowing the currency — renminbi (also called the yuan) — to appreciate and controlling bank lending.
The latest move was in June, when the central bank — People’s Bank of China (PBOC) — raised the reserve ratio by 1 percentage point in all: 0.5 point effective June 15 and another 0.5 point effective June 25. The rise on June 25 was the sixth this year and brought the ratio to a record 17.5 percent.
The tight policy appears to have had an impact. The consumer price index eased to 6.3 percent in July from a near 12-year high of 8.7 percent in February.
Economic growth slowed to 10.4 percent in the first half of 2008 from 11.9 percent for all of 2007.
– “Prudent” fiscal and monetary policies (2005-2007)
China switched to a “prudent” policy at the beginning of 2005. During 2005, the country reduced issues of long-term National Construction Bonds to 80 billion yuan (11.7 billion U.S. dollars) from 110 billion yuan the previous year and cut the fiscal deficitby 19.8 billion yuan to 300 billion yuan.
In 2007, the PBOC raised the reserve ratio 10 times, from 9 percent in January to 14.5 percent as of December. The central bank had raised the ratio only five times over six years since 2000.
– “Proactive” fiscal policy and “prudent” monetary policy (1998-2004)
The proactive fiscal policy and prudent monetary policy were adopted in 1998 to counteract the negative impact of the 1997 Asian financial crisis.
China issued 910 billion yuan worth of national bonds over these years and invested the proceeds in infrastructure. The move boosted domestic demand, which had been weakened by the financial crisis, and contributed 1.5 to 2 percentage points of national output growth each year.
– “Appropriately tight” fiscal and monetary policies (1995-1997)
To rein in high inflation that started in 1993, China imposed appropriately tight fiscal and monetary policies. There was a surge in fixed-asset investment in the latter half of 1992, which was followed by major food price rises in 1993.
After the new policies were launched, the PBOC stepped up efforts to control money supply and finally reduced the consumer price index from 21.2 percent in January to 12.3 percent in August in 1995. The annual price increase was kept under 15 percent and gradually leveled out in the following years.
Source: Source: China Daily
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Yuan falls against U.S. dollar for 11 straight days
August 12, 2008
– China’s currency on Tuesday dropped against the strengthening U.S. dollar for the 11th consecutive day, the longest continuous fall since it was unpegged from the dollar in July 2005.
The central parity rate of the yuan, or Renminbi (RMB), was 6.8659 to the dollar, according to the China Foreign Exchange Trading System. The reference rate was down 21 basis points from the previous trading day. [Read more]
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An Economic Alarm (from Vietman)
July 22, 2008
Articele written by Lan Xinzhen,Beijing Review
Devaluation of currency, runaway inflation, huge outflow of speculative capital, decreasing resident purchasing power, a series of strikes against price hikes … Vietnam is confronted with an economic crisis.
Although the Vietnamese economic crisis has not yet caused any severe adverse reactions for other Asian economies, the international community, particularly emerging economies, is not relaxing its vigilance.
An alarm to China
In fact, the problems bothering Vietnam also exist in China in varying degrees, so the economic crisis in Vietnam arouses disquiet among economists over the economic development of China.
“If the Vietnamese economic crisis further expands, it is likely to spread to other countries, and China may be infected,” said Cao Honghui, head of Financial Market Research Office of the Institute of Finance and Banking of the Chinese Academy of Social Sciences (CASS). In his opinion, as with Vietnam, South Korea and Thailand are experiencing record inflation highs in the last seven and 10 years respectively, and inflation in Indonesia has also surpassed 10 percent. If these emerging economies are confronted with the same problems as Vietnam, it will be impossible for China to escape alone.
According to Cao, the most likely problem is that the hot money withdrawn from countries like Vietnam may flow to China, making it more difficult to strictly control excessive liquidity.
The People’s Bank of China, the country’s central bank, has launched a circular, requiring banks and other financial institutions to pay close attention to capital flows of foreign capital accounts and prevent an inflow of hot money.
A report released by China International Capital Corp. Ltd. says that among emerging Asian economies, China has the most stable economic situation and its foreign exchange reserve is the largest in the world. With improving fiscal conditions, it has ample fiscal revenue and the banking system is being perfected. However, once neighboring emerging markets are in turmoil because of inflation, the crisis may influence China in three aspects. [Read more]
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