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| Chinese Foreign Exchange Reserves Top $740 billion. China Weekly Report 09-19-2005 | ||||
The renminbi has a current value of 8.0871 versus the dollar, its highest level versus the dollar since the July 21. The yuan weakened to 7.3101 against 100 yen Friday versus 7.3065 Thursday, and softened against the euro to 9.9298 from 9.8921, according to the central bank. The benchmark Shanghai Composite Index nudged upward 0.63 percent to 1,220.63. The Shenzhen Composite Index rose 0.89 percent to 301.71. China shares rose modestly on Monday as investors bought shares in ailing companies in hopes they will be delisted and restructured. The central bank in July revalued the yuan to about 8.1 to the dollar and scrapped an 11-year-old peg to the US unit in favor of a link to a basket of currencies. The People's Bank of China allows a daily movement of 0.3 percent on either side of the daily fixing rate. The currency is allowed to fluctuate 1.5 percent either side of those closing rates. PBOC defends the stability of the yuan exchange rate at a reasonable and balanced level The People's Bank of China said in a statement after its first policy committee meeting since the 2.1 pct revaluation of the currency in July that it would "maintain the basic stability of the yuan exchange rate at a reasonable and balanced level." The Central Bank is confident that it can keep the currency stable while allowing the market to price the currency. The opinion of the Central Bank is that a large revaluation could hurt the commodity consumption cycle, manufacturing and could cause a lot of volatility in the foreign exchange markets. The central bank said in its statement on its website that expectations of a further appreciation of the yuan had eased on the forward market since shortly after the revaluation. The People's Bank of China also said that it would maintain its prudent monetary policy and continue efforts to move towards a more market-oriented interest rate regime. The bank said that the economy is cooling slightly though it continued to expand at a relatively rapid pace. Chinese foreign exchange reserves top $740 billion Chinese foreign exchange reserves exceeded $740 billion at the end of July thanks to a growing trade surplus and foreign investment. The rise in July was higher than the $20 billion increase in each of the previous two months, which showed a razor-sharp acceleration from April's $12 billion rise, according to central bank data. Tang Xu, the head of the research division at the People's Bank of China, said that foreign exchange reserves in the last few months were following year earlier growth rate and also added that no substantial flows of speculative money have been flowing into China after the yuan reforms announced on July 21. Growth of China 's economy slowing China 's GDP is expected to grow 9.3 percent this year and only 8 percent in 2006 versus a growth rate of 9.5 percent in 2004. Gross domestic product rose a year-on-year 9.5 pct in the first half and expectations are for a more than nine pct rise for the full year. After the revaluation, there has been slowing investment growth as well as a heavier concentration on raising import levels which is bringing down the contribution of net exports therefore slowing GDP growth. Exports is the prime engine of growth in China but now with nations pressuring China to further revaluate the yuan and putting quotas on its exports, this engine is slowing and the government is rethinking this dependency. Despite slightly lower demand for exports, Chinese industrial production rose 16 percent in August, somewhat higher than expected, led by car and steel productions. This boom comes at a time when domestic demand is falling due to the government curbing investments last year after problems with power shortages and transport bottlenecks. Exports are not rising fast enough to keep up. This is causing prices to slide from oversupply in many industries such as steel, aluminum and cement. The central bank also noted problems with fixed asset investment in some sectors even though the government had taken measures to cool the economic expansion. It did not elaborate but in the past it has singled out real estate as well as steel and autos among other sectors. The central bank also noted problem of an expanding trade surplus despite the currency revaluation. The surplus for the January-August period topped 60 bln usd, nearly double the year ago level. Trade gap between China and the US this year is expected to reach $200 billion China 's trade surplus was the third highest on record in August as export growth outpaced imports for the 10th month in a row, suggesting calls for the nation to allow its currency to rise further may intensify. The surplus reached $10 billion, compared with $10.55 billion in July and $4.52 billion a year earlier, the Beijing-based customs bureau said on its Web site. |
Exports in August surged 32.1 percent to a record $67.8 billion and imports increased 23.4 percent, also reaching an all-time high. China 's trade surplus for the first eight months of the year was $60.2 billion, up from $50 billion in the first seven months and nearly double the $32 billion reported for the whole of 2004. The trade gap between China and the US this year is expected to reach $200 billion. China has expressed interest in importing more US goods to ease this. Much of the interest is in hi-tech goods which the US is not as willing to export. The small revaluation of the yuan in July had virtually no impact on China 's exports. In fact, in August China 's exports picked up momentum hitting $67.85 billion, 3.4% higher than in July and 32% higher than exports a year ago in August 2004. Imports in August were $57.78 billion, up 23% from August 2004, leaving China with a surplus for the month of $10.04 billion. - ADVERTISEMENT - The Commerce Department reported that the July trade gap fell by 2.6 percent to $57.9 billion from an inequality of $59.5 billion in June, the second highest deficit on record, and the politically sensitive deficit with China also set a record. The U.S trade deficit with China increased by 0.3 percent to an all-time high of $17.7 billion and is running at an annual rate 29 percent above the same period last year, when the deficit hit $162 billion. That was the largest imbalance ever recorded with any country. The improvement in the overall July deficit reflected a 1 percent increase in U.S. exports of goods and services, which rose to an all-time high of $106.2 billion as U.S. sales of computer chips, civilian aircraft and American-made cars all increased. Total imports fell by 0.7 percent to $164.2 billion as declines in demand for foreign aircraft, computers and industrial machinery offset the big jump in oil imports. IMF Says that China Needs to Make Steps Towards Flexible Exchange. In its evaluation of the Chinese economy, the IMF said it expects growth of 9 percent this year, up from an 8.5 percent projection in April. The economy expanded 9.5 percent in the first half of the year, though the IMF sees some macroeconomic policies slowing growth, and warned of external factors. The IMF suggested China rely more on market-based instruments and grant its central bank more authority over interest rates. China could also accelerate the development of bond and equity markets by ending the system of government approval for the issuing of bonds, and removing the cap on corporate bond interest rates would allow for better pricing, the report said. " China 's recent revaluation of it currency didn't go far enough, and it's important for the nation to make the exchange rate more flexible to protect against external fiscal shocks", the International Monetary Fund. Making the rate more flexible would indirectly facilitate greater exchange with other Asian nations, the IMF said. The IMF projects China will export $750 billion in goods year, up from $593 billion in 2004 and $438 billion in 2003. Imports are expected to reach $654 billion in 2005, up from $534 billion in 2004. The nation's account balance will swell to $114 billion, or 6 percent of gross domestic product, from $69 billion, or 4.25 percent of GDP, in 2004, the IMF said. by Antonio J Fernandes Sousa, Forex Capital Markets LLC Please send your comments to asousa@fxcm.com
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