Excerpts from the President's Roundtable Interview with Asian Journalists Excerpt on Fair Trade

Excerpts from the President's Roundtable Interview with Asian Journalists Excerpt on Fair Trade


For Immediate Release
Office of the Press Secretary
October 14, 2003

Excerpts from the President's Roundtable Interview with Asian Journalists Excerpt on Fair Trade
Q Mr. President, Are You Concerned at the Way American Jobs Are



being sucked away to Asia, particularly China, but also Malaysia, Indonesia, Thailand? Are you going to be speaking to your APEC colleagues to try to help you do something about this?

THE PRESIDENT: Well, I'm going to say that where there is trade imbalances, countries need to be mindful that we expect there to be fair trade. And I fully understand a competitive world is one that I think is positive, so long as the competition is fair.

And we'll talk about currency with the Chinese and with my friend, Prime Minister Koizumi. I will remind them that this nation has a strong dollar policy, and we expect the markets to reflect the true value of currency. That the way that currencies ought to be valued is based upon economic activity, fiscal policy, monetary policy of the respective governments, the potential for growth, the potential for long-term viability of the economies. That's how our respective currencies ought to be valued.

Yes, we'll bring that up. And I am -- my main focus here in America is there to be significant job creation. It looks like we're getting some positive results. Part of making sure that the job creation -- momentum of the job creation is viable is to make sure -- is to talk to our trading partners about fair trade. And there are some trade imbalances that I will be discussing.

EXCERPT ON DOLLAR POLICY

Q Given the recent depreciation of the dollar vis-a-vis the yen, what do you think of the dollar's devaluation?

THE PRESIDENT: I think I'm for a strong policy. We have a strong dollar policy in this administration. Currencies ought to be valued based upon the respective strengths of the economies, based upon the policies of the governments. We have had a very pro-growth policy in this administration. I've worked with Congress to enact historic tax relief in order to give our people more of their own money back and let them spend it and drive demand for goods and service. And it's beginning to pay off. The economy is improving. And markets ought to be evaluating our respective currencies.

Q So what is your view on Japan's --

THE PRESIDENT: Well, that's my view, that markets ought to be determining respective to currencies.

###


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Copyright 2005 Newspaper Publishing PLC
The Independent (London)

April 25, 2005, Monday

SECTION: First Edition; BUSINESS; Pg. 67

LENGTH: 1344 words

HEADLINE: BUSH THREATENS TO TURN UP THE HEAT ON CHINA, BUT THE US COULD GET BURNT

BYLINE: STEPHEN KING

BODY:
I sincerely hope that Chinese policymakers have access to a collection of asbestos shoes because, according to Rob Portman, President Bush's nominee for US trade representative " and a man seemingly in a hurry to establish his hawkish credentials " 'we need to hold their feet to the fire'. This charming approach to international trade relations no doubt went down well in front of the Senate Finance Committee last week but the reaction from Beijing will, presumably, be somewhat more frosty (a good thing too: a cool reaction will help to soothe the burns.)

America's new-found hostility towards China doesn't stop there. The Treasury Department has decided to adopt a more 'Rambo-esque' approach to Sino-American relations, demanding that Beijing should revalue the renminbi not next week, and not even next month, but now.

America, so it seems, needs immediate action from China: anything less just isn't good enough. And, as if to add insult to injury, no lesser man than Alan Greenspan, the chairman of the Federal Reserve, has suggested that it would be in China's own interests to revalue the renminbi because the alternative " excessive domestic liquidity, a side effect of persistent foreign exchange intervention " would eventually lead to rampant Chinese inflation.

At least Mr Greenspan had the courtesy to argue that a revaluation of the renminbi might be in China's interests. The rest don't seem too bothered about China's aspirations at all, instead preferring to think about the threat to America, and to American jobs, that stems from persistently cheap Chinese exports. In the midst of all these worries, protectionism is rearing its ugly head: Congress is pondering whether to impose huge tariffs on Chinese exports unless China agrees to revalue the renminbi within the next few months.

This is not the first time the US has demanded action from a recalcitrant trading partner. Over the years, the US has frequently pointed its finger at others and demanded action. In the 1980s, Congress threatened Japan with tariffs unless the Japanese allowed the yen to rise and, at the same time, boosted domestic demand. At the beginning of the 1970s, President Nixon imposed import tariffs on other members of the Bretton Woods exchange rate system, and removed them only when the other countries agreed to revalue their currencies against the dollar.

China would do well to look carefully at these two episodes before acquiescing to US pressure. In the 1980s, Japan did exactly what the US demands of China now: the yen rose, Japanese interest rates were cut and the Japanese economy boomed. Japan's trade surplus did come down " as Congress had demanded " but the cost to Japan was, ultimately, enormous: a stock market and land price bubble, a serious misallocation of resources and, eventually, a sad descent into deflation and economic stagnation (see charts).

In the early 1970s, the initial revaluation of exchange rates within Bretton Woods didn't amount to very much. But the revaluation revealed to speculators that the Bretton Woods system was no longer one of fixed exchange rates but, instead, a system of adjustable exchange rates. George Soros's forerunners suddenly realised they could bet on the likelihood of further currency appreciation: by the beginning of 1973, the whole system was blown apart. Countries, now cut adrift from any kind of intelligible monetary framework, found themselves facing inflationary and financial market turmoil.

The bottom line is that protectionism is an extraordinarily blunt instrument, a policy that leads to unintended and, all too often, unfortunate consequences. So why do politicians ever go down the protectionist route in the first place? The obvious answer is votes. Politicians think they look tough when they're rattling a few sabres and standing up for the 'national interest', and there's no doubt that Congress and, more recently, the US Administration think that a bit of China-bashing can only do some good.

It's not obvious, though, that the latest bellicose approach really is in America's national interest. China's emergence as an economic powerhouse cannot be denied, but to see China's emergence purely in competitive, antagonistic, terms is fairly silly. In part, this is because China has learnt from Japan's mistakes in the 1980s. Japan refused to have anything to do with Western companies, spurning attempts by them to get a foothold on the Japanese mainland. China, though, has actively encouraged inflows of foreign direct investment from Western companies. And, because of this, China's relationship with the rest of the world is, whether the US likes it or not, one of mutual dependence. Hurt China and you may, inadvertently, hurt yourself.

Workers in Western manufacturing industries have good reason to feel threatened by China's rapid growth. Yet this sense of foreboding is nothing new: Western manufacturing has been on a declining trend for decades and China's arrival only continues that trend. I doubt that many US Congressmen look back at the inefficient rust belt that dominated US manufacturing in the early 1980s with any degree of fondness, yet they're in danger of protecting the same sorts of businesses 20 years later.

Companies " and, more importantly, the shareholders who own companies (and I'm thinking here of all those people who have occupational pensions that, in turn, depend on company profitability) " should regard China as an opportunity, a chance to allocate capital more efficiently on an increasingly global stage.

Western consumers will also welcome China's emergence: Wal-Mart would never have achieved its phenomenal success without China's help, and Wal- Mart's success has doubtless been of benefit to US consumers.

For the West, then, the problem with China really lies with the seeming ambiguity of China's impact on the industrialised world. We worry about the potential loss of jobs. Yet we lose sight, in the process, of the income gains that come to us as consumer goods are produced more cheaply by Chinese workers. After all, if DVD players and televisions fall in price, we have more money left over to go on holiday, to eat out, to hone our torsos in health clubs or, for those so inclined, to slob out in front of Sky Sports Extra. And we lose sight of the potential benefits for our longer term financial health as corporate profits rise, boosting the value of our pension funds.

Ultimately, I don't think it's China that's at fault. What we're seeing, instead, is a growing paranoia from politicians who recognise that the free flow of capital around the world, and the opening up of new economies and labour markets, threatens their own sovereign power.

In the same week that American politicians decided to turn up the heat on China's leaders (or, at least, on China's leaders' feet), DaimlerChrysler provided yet another example of the blurred lines associated with China's emergence. Here's a company that is managed mostly by Germans, represents a merger between German and American companies and which, at the Shanghai motor show on Thursday, said that it was moving ahead with plans for a new factory in China to produce cars that will be exported to America.

I've no doubt that, if this venture takes off, China's trade surplus with the US will rise still further because these cars will be cheap. But who, if anyone, should we blame for this? The evil Chinese workers who are prepared to work for very low wages? The devious German managers, who have decided to take jobs away from Detroit and give them to the Chinese? The avaricious shareholders who demand profits at all costs? Or, maybe, the spendthrift US consumers, who are happy to carry on buying so long as the price is right? The reality, of course, is that all these people benefit. The odd thing, then, is that the injuries caused by US protectionist pressures might not be limited to the occasional Chinese burn: there's every chance that Rambo will end up shooting himself in the foot.

LOAD-DATE: April 25, 2005

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Copyright 2005 The Financial Times Limited
Financial Times (London, England)

April 28, 2005 Thursday
London Edition 1

SECTION: ASIA-PACIFIC; Pg. 13

LENGTH: 685 words

HEADLINE: Talk of revaluation attracts 'hot money': Speculation on the renminbi has added to pressure for a realignment of China's currency, report Mure Dickie and Richard McGregor

BYLINE: By MURE DICKIE and RICHARD MCGREGOR

BODY:


When it came to speculating on the renminbi, China's capital controls looked more like a challenge than a barrier to Mr Hu, an enterprising entrepreneur from the eastern city of Wenzhou.

Using his permanent residency in France, Mr Hu set up an offshore company to buy property from a real estate business he established in China, says Mei Xinyu, an expert on currency controls at the Chinese Academy of International Trade and Economic Co-operation.

The property did not actually exist. But the paper trail allowed Mr Hu to apply to bring Euros 284,000 (Dollars 369,000, Pounds 193,000) into China. "The contracts were completely in accordance with the law, absolutely faultless," says Mr Mei, whose institution is controlled by China's Ministry of Commerce.

The Wenzhou entrepreneur - who was unmasked last month by regulators - offers an example of the efforts that individuals and companies have been making to move funds into the renminbi amid widespread speculation that Beijing is moving towards a significant revaluation.

Dubbed "hot money" and "floating capital" in Chinese, such transfers exploit holes in the country's closed but leaky capital account.

The transfers, which are propelled by expectations of an adjustment to the renminbi's decade-old peg to the US dollar, have themselves become an added source of pressure for revaluation.

Capital inflows, aside from foreign direct investment, have accounted for nearly half of China's huge reserve accumulation since 2003, according to a paper prepared for the Bank of International Settlements.

Mr Mei says the inflows complicate monetary policy and raise fears about economic overheating and asset price bubbles. "This issue relates to our overall economic stability, so it's a very big problem," he says.

Small-scale Wenzhou businessmen are hardly the biggest culprits. The fastest growing source of foreign exchange for China in 2004 was so-called "credit transactions" - offshore US dollar borrowings by Chinese companies that were converted to renminbi on the mainland.

Nicholas Lardy, a China scholar with the Institute for International Economics in Washington, says the main driver for such offshore borrowing - at a time when Chinese banks are flush with cash to lend - is the expectation of a windfall from a revaluation. "I think it is Chinese entities borrowing dollars and converting it into renminbi and hoping to be able to repay it later at a more favourable date," he said.

Mr Lardy says 2004 net foreign debt inflows - new borrowings minus repayments and interests payments - soared 360 per cent year-on-year.

For some, the borrowings are an unwelcome reminder of the 1997 Asian financial crisis that crippled numerous countries in the region. High levels of short-term foreign borrowings in countries such as South Korea, Thailand and Indonesia helped trigger a sell-off by foreign investors of their currencies leading to a cycle of depreciation and ballooning debt.

China's closed capital account still offers some protection and, for now at least, its currency is under pressure to rise rather than fall.

"Of course, it has a whiff of 1997 about it," says Jonathan Anderson of UBS in Hong Kong, but he adds that current currency flows are not large compared with the size of China's economy or Beijing's Dollars 659bn in foreign exchange reserves.

Mr Anderson notes that recent capital inflows have been motivated by the potential for better investment returns in China and by lower interest rates in the US. The inflows are not "hot money" according to the definition usually used in western financial markets.

"This is not George Soros and big hedge funds," he says.

"It is not money that is likely to back out if there is a trigger."

Indeed, some analysts argue much of the capital being moved into China that is seen as speculative is merely a rational attempt to hedge by individuals and companies.

A researcher at a government regulator says such transfers make it harder for Beijing to push exchange system reform but officials should not fret too much about the issue, especially as rising US interest rates are likely to ease the flow.

LOAD-DATE: April 27, 2005

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Copyright 2005 Xinhua Financial Network Limited
All Rights Reserved.
Xinhua Financial Network News

January 28, 2005 Friday 3:29 PM GMT

LENGTH: 968 words

HEADLINE: FOCUS - China to let the yuan appreciate gradually; no drastic revaluation

BODY:


---- by Lara Wozniak ----

HONG KONG (XFN-ASIA) - China will not undertake any sweeping revaluation of the yuan, but is likely to widen the trading band and gradually appreciate the unit over time to ensure an orderly transition to a more flexible currency regime, analysts said.

Last year many market watchers wrote in their research reports and told the media that China, which has pegged the yuan at about 8.28 to the dollar since 1994, would revalue it upwards in 2004.

But that did not happen.

Now ahead of the meeting of finance chiefs of the Group of Seven nations on on February 4-5, analysts are more cautious, with the buzzwords being "possible", "mild" and "gradual".

China's finance minister Jin Renqing and the People's Bank of China (PBoC) governor Zhou Xiaochuan will be attending the G7 meeting as special invitees.

Chinese state media reported this week that Jin is likely to discuss the yuan's exchange rate and push for measures to prevent major foreign exchange fluctuations at the meeting.

Meanwhile, a spokesperson for PBoC told XFN-Asia today that comments by a member of the bank's monetary policy committee that it is time for a revaluation of the yuan do not reflect the views of the central bank.

"Yu (Yongding)'s comments do not represent opinion of the central bank or the monetary policy committee. It is purely his personal opinion," the spokesperson said.

Yu was quoted in media reports from the World Economic Forum in Davos, Switzerland, as saying that it is time for more flexibility in the exchange rate and that meant a revaluation.

Analysts said it is difficult to predict when exactly China will move on the currency front.

"It's possible they could revalue this year but it is one hundred times more difficult to predict what China is going to do than to predict the (actions of the) Fed," said Yonghao Pu, head of Asia regional research for UBS Wealth Management, referring to the US Federal Reserve.

"It is likely they (Chinese authorities) will continue to let the currency gradually appreciate."

Hong Liang, an executive director and China economist at Goldman Sachs Asia, argues that "mild renminbi revaluation" engineered through a "gradual widening of its trading band" is how China should move forward.

"It will move to a basket-band crawl system, similar to the Singaporean arrangement," she said, adding that she envisions a 2.5 plus or minus band.

Since 1981 Singapore has used a "managed float" exchange rate based on the appreciating trend against the main global currencies, including the US dollar, the yen and the Deutsche mark and now the euro.

New York-based Clyde Wardle, a currency strategist for HSBC, perhaps takes the most conservative view, saying that a full-fledged currency revaluation could be 10 years away.

"It's worth remembering that first, the focus for Beijing is on long-term economic stability and job strength," says Wardle, noting that he thinks the current administration expects to be in power for at least another decade and is planning according to that time line. "Any changes therefore will be very gradual."

The one point most analysts agree upon is that the adjustment of the currency, however and whenever it takes place, will happen on China's terms.

"China will consider its domestic consideration first," UBS' Pu said in a recent press conference, emphasizing the word domestic. "Then it will take into consideration pressure from the US and the IMF."

Speaking to XFN-Asia recently on the telephone, he added: "In 1997 everyone said China was going to devalue, I said then, it's not going to devalue. Listen to China. Listen to what the officials are saying. That's what I'm saying again now."

Earlier this week, Li Deshui, head of China's National Bureau of Statistics and a member of the monetary policy committee of its central bank, reiterated that the time is not right to drop the yuan's peg to the dollar.

Meanwhile, US President George Bush said at his first press conference in his second term that he has been discussing currency controls with China.

On the same day, Zhu Guangyao, head of the Finance Ministry's international department told a business forum that "For any country the exchange rate issue should be decided by the sovereign state."

According to the official numbers, China's economy is still powering ahead. The National Bureau of Statistics (NBS) announced that China's gross domestic product grew 9.5 pct last year, 0.2 pct more than the revised expansion recorded in 2003, despite official efforts to reign in growth.

In addition to the continued rapid growth, China's mounting supply of foreign-exchange reserves, which reached 609.9 bln usd at the end of last year, is putting pressure on Beijing to let its currency appreciate in some manner.

But on the flip side, Chinese authorities wil take comfort from the fact that inflation appears to be easing and credit growth is showing a decline.

The NBS said China's consumer-price index (CPI) rose 2.4 pct year-on-year in December, slowing from a growth rate of 2.8 pct in November.

And the People's Bank of China's credit-tightening measures such as increasing required deposit reserves ratio and hiking interest rates to tighten money supply and control credit growth, appear to be working. The central bank set a growth target of 2.66 trln yuan for lending in 2004, but banks lent only 2.26 trln, compared with the 2.77 trln recorded in 2003.

"They would move if they felt it would help them manage the economy but I think right now that they believe the monetary tightening measures used so far -- administrative controls and interest rates -- are having the right impact as seen in the decline in credit growth and easing in inflation," said Brian Coulton senior director for sovereign ratings at Fitch Ratings in Hong Kong.

lara.wozniak@xinhuafinance.com

LOAD-DATE: January 29, 2005

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Copyright 2005 The Financial Times Limited
Financial Times (London, England)

March 15, 2005 Tuesday
London Edition 1

SECTION: ASIA-PACIFIC; Pg. 7

LENGTH: 401 words

HEADLINE: Wen warns of impact of revaluation on China

BYLINE: By RICHARD MCGREGOR

DATELINE: BEIJING

BODY:


Wen Jiabao, China's premier, yesterday warned countries pressing for a revaluation of the renminbi that they underestimated the impact it would have on Chinese companies and the global economy.

At the close of the National People's Congress, Mr Wen set out conditions that needed to be met before China could move to greater exchange rate flexibility, including financial and economic stability. But any revaluation "could be unexpected", he said.

His comments are consistent with the view that China feels no urgency to revalue. China, which has pegged its currency to the US dollar since the mid-nineties, has faced growing claims that the level of the peg gives Chinese exporters an unfair trade advantage.

The government has long said it would move to a more flexible exchange rate regime, but without giving a timetable.

Mr Wen said the government's aim was to have a "market-based, managed, floating exchange rate" system. "Our goal has been to let market supply and demand determine the exchange rate," he said.

"When we decide on this, we must take into account not only our own companies' interests, but also the impact on the world and neighbouring countries."

Speaking at his annual press conference at the close of the congress, he made it clear China was committed to pursuing policies for high-speed economic growth for the foreseeable future.

"A small economic growth rate won't do because it would make it more difficult for us to create jobs, increase revenue and engage in necessary undertakings for society," he said. "The Chinese economy is like sailing upstream - either it keeps forging ahead or it will fall behind."

The Chinese economy grew 9.5 per cent last year, according to government statistics. But foreign investment banks, using their own measures because of the unreliability of local figures, put growth at 11-12 per cent.

The government's official estimate for growth in 2005 is "about 8 per cent" but it has consistently underestimated increases in output over the past two years.

Mr Wen said controls aimed at choking off credit for investment in the sectors the government considered were growing dangerously fast had achieved "remarkable results".

Although the government would remain vigilant about a resurgence in investment, Mr Wen said the main problems were lower-than-desired food production and transport bottlenecks for coal and electricity. Concern, not obsession, Page 19

LOAD-DATE: March 14, 2005

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Copyright 2005 AFX News Limited
AFX International Focus

April 15, 2005 Friday 4:49 AM GMT

LENGTH: 343 words

HEADLINE: China currency revaluation will almost cancel trade surplus - Goldman Sachs

BODY:


BEIJING (AFX) - A five pct real increase in China's yuan will act to almost cancel out the country's trade surplus as both imports and exports are sensitive to exchange rate change, Goldman Sachs said.

A five pct appreciation of the yuan, which has been fixed in a narrow trading band of around 8.28 to the dollar for over a decade, could result in the disappearance of most of China's trade surplus, while a 10 pct increase would render a small trade deficit, Goldman Sachs said in a research note.

'Contrary to the popular view that a yuan appreciation would not affect China's trade pattern, we believe a five to 10 pct real appreciation of the yuan could go a significant way in narrowing China's trade surplus,' the brokerage said.

An appreciation of the yuan will soften exports while encouraging imports, with a 10 pct appreciation of the real exchange rate resulting in a 15 pct reduction in export volume over time, Goldman Sachs said.

'Economic theories tell us that the more open and the more price sensitive an economy is, the smaller the currency needs to adjust to correct a given amount of trade imbalances.'

China's economy has become substantially more open following 25 years of reform, and trade liberalization policies have led to tariff rates and non-tariff barriers that are much lower than those of Japan or South Korea when they were at a similar stage of development, it said.

'After 25 years of reform, the Chinese economy has become substantially more open, and more market-oriented,' it said.

'Therefore, we should expect trade patterns to be more responsive to market price signals.'

But a zero trade balance should not be the benchmark for fair value of China's currency as, given the country's relative higher returns, it should be a net importer and run a current account deficit rather than a surplus, Goldman Sachs said.

'Policy choices that keep the yuan peg and suppress domestic demand will likely widen the trade surplus and tilt the Chinese economy to a more imbalanced growth path,' it added.

will.davies@xinhuafinance.com

wd/dg/dk

LOAD-DATE: April 16, 2005

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Copyright 2004 AFX News Limited
AFX.COM

November 29, 2004 Monday

SECTION: ECONOMIC NEWS; MARKETS

LENGTH: 358 words

HEADLINE: China's Premier Wen Jiabao questions US currency management - report

DATELINE: BEIJING

BODY:
Premier Wen Jiabao launched an indirect attack on the US yesterday for failing to halt the slide in the dollar, while vowing not to revalue the yuan under pressure, the South China Morning Post reported.
The Hong Kong-based newspaper said Wen questioned the US government's management of its currency.
"China is a responsible country. We have ensured that the exchange rate of the renminbi remained stable during the 1997 Asian financial turmoil and, by doing so, contributed to the resolution of the crisis," Wen was quoted as saying on the sidelines of the Association of Southeast Asian Nations summit in the Laotian capital of Vientiane.
"Today, we have to ask a question. The US dollar is depreciating and there is no attempt to manage it. What is the reason for this? Shouldn't the relevant parties take measures?"
Wen described the revaluation of the yuan as a major economic issue that should not be carried out under pressure.
"(Revaluation) should be introduced when the timing is right. If society continues its rampant speculative activities on the yuan, like it is now, it will be impossible for us to introduce the measure," Wen said.
Changes to the exchange rate require certain conditions, he said.
"The most important is to have a stable macroeconomic environment, a healthy and complete market mechanism and a healthy financial system," he said.
"We must consider the effect on China's own economy and society, and must consider its impact on the region and the world."
Wen's remarks were echoed at home by central bank vice-governor Li Ruogu, who said China had no timetable for the reform of its currency exchange mechanism because it had no idea how long such a reform would take.
China's major trading partners are pressuring the government to revalue the yuan, which has been pegged to the US dollar for the last 10 years, on the grounds the currency is undervalued and therefore provides a subsidy for Chinese manufacturers shipping goods overseas.
amj/tr
For more information and to contact AFX: www.afxnews.com and
www.afxpress.com

LOAD-DATE: November 29, 2004

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Copyright 2005 Nationwide News Pty Limited
The Australian

March 15, 2005 Tuesday All-round Country Edition

SECTION: FINANCE; Marketplace; Pg. 27

LENGTH: 425 words

HEADLINE: China resists yuan revaluation

SOURCE: MATP

BYLINE: Catherine Armitage China correspondent

BODY:
CHINESE Premier Wen Jiabao has ruled out an imminent revaluation of the yuan but said further reform of China's exchange rate mechanism "may come unexpectedly".

He said China would "strengthen and improve" macro-economic policy measures to stabilise growth, while also acknowledging China's unruly and plunging stock market was of particular concern.

In his annual press conference at the Great Hall of the People yesterday, Premier Wen warned that a revaluation of the renminbi -- from a current peg of 8.3 to the US dollar that critics claim artificially helps Chinese exports -- could have a negative effect on Chinese companies, neighbouring countries and "even the world".

He criticised those urging revaluation of the renminbi, saying they had "not given much thought to the problems that will arise thereafter".

While work on exchange rate reform was "in progress", the necessary pre-conditions for reform were macro-economic stability and growth and "a healthy financial situation". Although much progress had been made, the "road ahead could be rather rocky".

Premier Wen said financial reform was a "critical and often problematic aspect of the economy".

Premier Wen said this year would be "the year we are going to fight the toughest battle in the reform process".

Although policy measures to cool overheated parts of the economy had been largely successful, "we must not slacken our efforts in the slightest".

"The situation China is facing now is like going upstream. If we don't simply forge ahead, we will fall back."

The Premier cited specific problems in the economy, including soaring prices for capital goods, low farm incomes and an "overstretched supply chain" in raw materials such as coal, electricity and oil.

"Our top priority is to further strengthen and improve macro-control measures to achieve fairly stable and fairly rapid economic growth."

Premier Wen said the Government would use market-based and administrative measures to achieve its goals. He listed restructuring and transforming the functions of government among the highest priorities, which also included state enterprise reform focusing on corporate governance and the shareholding system, as well as financial, rural and social security reforms.

He said China was "not knowledgeable or experienced enough" in running a securities market. He promised the government would "take measures to strengthen its work in this respect" by improving the quality of listed companies and tightening market oversight to stamp out financial fraud.

LOAD-DATE: March 14, 2005

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Copyright 2005 Asia Pulse Pte Limited
Asia Pulse

April 7, 2005 Thursday

SECTION: Northern Territory Regional

LENGTH: 915 words

HEADLINE: CHINA SHOULD NOT HASTILY CHANGE ITS EXCHANGE RATE REGIME: WB

DATELINE: BEIJING, April 7

BODY:
China should not revamp its exchange rate regime before the conditions are ripe, a senior World Bank economist said yesterday.

If Chinese policymakers want to refocus the renminbi's exchange rate system, they should strive to build a more flexible one instead of simply revaluing the currency, said Hans Timmer, a senior economist at the bank.

"There is no hurry there," he said, adding that when conditions are ripe, "you have the opportunity to do that."

China is under pressure from some major trading partners to revalue its currency, which they claim is undervalued and has been giving Chinese exports an unfair advantage. The Chinese Government has insisted it will not resort to any simplistic revaluation of the currency but pledged instead to gradually improve the exchange rate forming mechanism.

While the renminbi faces upward pressure, it is not because it is undervalued, but mainly because of hefty capital inflows, Timmer said. "We don't see any obvious signs, from the trade perspective, that the currency is either significantly overvalued, or undervalued."

Timmer made these remarks as the bank launched its annual Global Development Finance 2005 report simultaneously in Beijing and Paris.

Bert Hofman, the lead economist at the World Bank's Beijing office, said this was the first time the bank launched a global report from Beijing, which highlights China's growing role as a global economic player.

According to the report, China accounted for 88 per cent of foreign direct investment in the East Asia and Pacific region last year, which stood at US$63.6 billion, up from a low of US$49.9 billion in 1999. The country accounted for 78 per cent of portfolio equity inflows to the region last year, up from 65 per cent in the previous year, and accounted for 90 per cent of the foreign exchange reserve increases recorded in the region, which came in at US$230 billion.

The report, entitled Mobilizing Finance and Managing Vulnerability, finds that although growth in developing countries remains robust, it is becoming more sustainable. But it points out that global imbalances remain a serious risk factor, and that slow growth and higher interest rates could jeopardize the finances of developing countries.

Soft landing attainable

While China's strong 9.5 per cent economic growth and soaring investment and loan growth last year has prompted worries an overheating of its economy, the nation is well on track for a soft landing in the next two years, Asian Development Bank economists said yesterday.

Zhuang Jian, the bank's senior economist, said China's fast fixed asset investment, stable retail sales market and high export growth witnessed in the first two months of this year suggested its gross domestic product could grow at a higher rate.

"China's economy is likely to grow 8.5 per cent in 2005, 8.7 per cent in 2006 and 8.9 per cent in 2007," he told a press conference in Beijing yesterday.

The bank's previous forecast for China's 2005 economic growth was 8 per cent.

This means the country's economy will achieve its targeted soft landing this year and in the next two years, he said.

According to the Asian Development Outlook 2005 published yesterday, China's fixed asset investment is expected to grow about 18 per cent this year and around 13 per cent in 2006-07, slowing from last year's 25.8 per cent.

Overheated sectors such as steel and cement will face the biggest cutbacks, the bank's report said.

But the government may have difficulties in curbing investment growth, as construction of unfinished projects will continue, it said.

Private investment will also continue to grow rapidly and foreign investment looks set to remain strong.

The report stated that consumption will maintain its double-digit growth rate, but this will be significantly lower than the rate for investment.

The government should take a series of effective measures including increasing rural incomes to stimulate consumer demand, it said.

The bank's report pointed out that China's export growth will fall to 12 to 20 per cent in 2005-07 from more than 30 per cent last year.

Slower global economic growth, increasing trade protectionism and anti-dumping actions against Chinese exporters, as well as rising labour costs and higher oil prices, will have an impact on the country's exports, it said.

China's consumer price index, policy-makers' key inflation measurement, is expected to rise 3.6 per cent this year, 3.3 per cent in 2006 and 3.2 per cent in 2007, the report said.

Zhuang said the higher producer prices, increasing labour costs, and local governments' strong desire to raise the prices of public utilities such as water and electricity will increase inflationary pressures.

Judging from the present economic and inflation situation, China still has room to further raise the renminbi interest rate, said Chief Economist Tang Min from the Asian Development Bank's Resident Mission in China.

"The interest rate for savings deposits is still in negative territory, when considering the inflationary factors," he said. "The lending rate was also quite low."

According to Zhuang, a possible rebound in fixed asset investment remains a concern for China's economic development this year.

China's fixed asset investment grew 24.5 per cent year-on-year during the first two months of 2005.

This was still a fast rate, although it was on the way to a soft landing, he said.

(XIC)

LOAD-DATE: April 7, 2005

LexisNexis(TM) Academic - Document

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Copyright 2005 The Financial Times Limited
Financial Times (London, England)

March 30, 2005 Wednesday
London Edition 1

SECTION: THE AMERICAS & ASIA-PACIFIC; Pg. 7

LENGTH: 355 words

HEADLINE: China rules out revaluation of the renminbi

BYLINE: By ANDREW BALLS and RICHARD MCGREGOR

DATELINE: BEIJING and WASHINGTON

BODY:


China will not revalue its currency to rectify bilateral trade imbalances, Zhou Xiaochuan, governor of the People's Bank of China, said yesterday - despite US pressure to use the exchange rate to make Chinese exports less competitive.

Mr Zhou used an interview with the People's Daily, the mouthpiece of the Communist party, to clarify the bank's monetary and economic policies amid continuing speculation of an imminent change in interest rates and the currency.

His remarks will reinforce views that China feels no sense of urgency to revalue its currency and that the government has not settled on a new exchange rate mechanism. China has been under pressure to revalue the renminbi - fixed to the US dollar for a decade - from Washington and Brussels, which say it gives Chinese exporters an unfair advantage.

Rob Nichols, US Treasury spokesman, said: "The administration strongly believes a flexible, market-determined exchange rate regime, along with free trade and free flow of capital, is best for large economies like China's." Many Chinese academics and officials are also pressing for a more flexible exchange rate, mainly because they believe the peg deprives the government of an independent monetary policy.

Mr Zhou stressed that China would adopt a more flexible exchange rate on its own timetable and was focused not on a one-off revaluation but on finding a mechanism to allow the renminbi to float more freely.

"China's exchange rate policy mainly takes into account the international balance of payments and overall relations with the world economy, rather than the trade surplus or deficit with individual countries," he said. "Our mission in the future is mainly to improve the renminbi exchange rate formation mechanism, rather than simply adjust the exchange rate."

China's trade surplus with the US was Dollars 162bn in 2004, according to Washington's figures, the biggest deficit the US has recorded with one country. But China's surplus with the world was only Dollars 32bn, according to Beijing's calculations.

The central bank governor also damped speculation that a further rate rise was under consideration.

LOAD-DATE: March 30, 2005

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Copyright 2004 Market News International, Inc.
All Rights Reserved

The Main Wire

December 1, 2004 Wednesday

LENGTH: 654 words

HEADLINE: US Econ Bergsten: Stop Pushing to Float the Renminbi

DATELINE: WASHINGTON

BODY:


By Ludovic Lapierre


Noted economist C. Fred Bergsten Tuesday
said floating China's renminbi is "neither feasible nor desirable."


Leading a panel discussion sponsored by his Institute for
International Economics, Bergsten repeated that "a decline in the
exchange rate of the dollar is needed to promote a more balanced
economic world situation".


However a change in the exchange rate is not enough, he said. Such
a shift has to be supported by appropriate economic policies, "in
particular, fiscal corrections in the United States and equally
important, stimulation of domestic demand in the surplus countries,"
aiming his remarks at Europe.


East Asia must play "a dominant role in the international
adjustment of the dollar and in the corrections of the international
imbalances," Bergsten said.


Promoting his think tank's report, "Dollar Adjustment: How far?
Against What?" IIE Director Bergsten described the recommendations of
the U.S. government, the International Monetary Fund and the Group of
Seven to float the renminbi independent of the dollar as "neither
feasible nor desirable."


"The Chinese say they don't want to yield to international
pressure," he said, "and we agree with them. We think they should reject
the proposals they have been presented by the U.S. government, with all
due respect, by the International Monetary Fund and the G7."
He said, "Those proposals have been to float the exchange rate and
increasingly reduce their capital controls. We think that's neither
feasible nor desirable."


Bergsten said, instead, China should "show its independence by
taking a different tack" by "revaluing its currency on a one-shot
basis." He said 20% to 25% is the IIE's recommended devaluation "without
yielding to the foreign pressure."


That would also help China deal with its internal economic
problems, he said. "China's economy has been overheated, and a
revaluation would dampen growth of their exports, thereby cutting their
economic growth to a more reasonable level, as they themselves have said
they want," Bergsten said. "It would sharply and directly reduce
inflation pressure by cutting the price of imports and domestic
substitutes and it would choke off the inflow of speculative capital
that has been an important factor expanding their money supply and
making it difficult to bring the overheating under control. So, he
concluded, "there's no dilemma for China."


Another panelist, IIE senior fellow Morris Goldstein said he
regretted that "neither the IMF, nor its largest stakeholder, the United
States, have not been willing to "speak out" about renminbi
manipulation. "International codes of conduct for exchange rate policies
don't mean much if they are not enforced," he said.


Panelist Michael Mussa, former IMF chief economist, said, "It is a
mistake to begin that activity, by doing something that the IMF has
never done in its history, to issue a criminal indictment against a
single member country for policies that have been pursued by many member
countries for years, and China is by no means the worst transgressor in
this field."


Goldstein continued, "There is not yet a public statement by either
the U.S. Treasury or the IMF, that the renminbi is undervalued." But
"the IMF can be a little bit more forceful," he said, and the IMF has
already been "persuasive in some occasions in the past, including when
China unified its exchange rate."


In the short term, "a weaker currency tends to help you to
stimulate employment," said Mussa. But "It does not mean the weaker, the
better," he said. Because in the long run, a weaker dollar "means that
the United States and its residents are poor in term of their real
living standards."

** Market News International Washington Bureau: 202-371-2121 **

LOAD-DATE: December 2, 2004

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All Rights Reserved
Copyright 2005 SinoCast LLC. All rights reserved

SinoCast China Financial Watch

This content is provided to LexisNexis by Comtex News Network, Inc.

March 31, 2005 Thursday

LENGTH: 664 words

HEADLINE: Beijing Pick up Three Weapons on Swelling Forex Reserve

DATELINE: SHANGHAI

BODY:

The three tactics Governor Zhou Xiaochuan & Co. have been willing to utilize to cope with the rapidly expanding foreign exchange reserve are paid off, at least for now. But in the long run the passive containment could just "put a pedicab before a galloping train", until a radical reform in renminbi.

China's forex reserve, the world second largest, swelled anew in the first two months by USD 32.7 billion from USD 609.9 billion at end-2004. Nearly half of the incremental were so- called hot money, as the nation realized a trade surplus of USD 11.1 billion and USD 8 billion in foreign direct investment from January through February.

Due to unabated speculations on renminbi's imminent revaluation, the Middle Kingdom's foreign-currency hoard has been rising at a pace second to none. It added as much as USD 206 billion for the past year, or 12.9 percent of the gross domestic product.

That compares with a meager 3.7 percent for Japan, the forex bellwether in terms of USD 844.5 billion, and 16.1 percent for Malaysia, but whose economy is more export-oriented and thus is easier to absorb it.

What is worth attention is that China's cumulative forex reserve has made up 38 percent of GDP and the weight still is building up. More goods and services exporting to the European region, alongside North America, are expected for the recent nose dive of the value of the U.S. dollar, the hard currency the Chinese yuan pegs to.

Acceleration of such a magnitude poses an unwanted dilemma, however. On the one hand, it would empower the Communist government more room to deal with emergencies; on the other hand, it used to be neck and neck with inflation, based on empirical evidence.

Mr. Zhou Xiaochuan, boss of the central bank - People's Bank of China, certainly won't put up with the latter scenario. And, indeed, he is pulling the trigger.

The first weapon the central bank uses is encouraging capital outflow on a "measured" pace. Under the plan, legions of homegrown businesses would follow the step of Lenovo, the No.1 computer maker in the mainland that is in line for the whole PC operations of IBM by mid-2005.

All told, overseas acquisitions by Chinese companies surged 99 percent to USD 3 billion in the year ended December 20 from the same period in 2003, according to a Bloomberg report. State- run PetroChina and Sinopec have been active in investing abroad, one of their mandates is helping offset the foreign-capital influx.

Still, it has limitedness. The mainland's outward FDI totaled only USD 3.6 billion throughout 2004, said official statistics, while local corporations raised up to USD 7.8 billion from initial public offerings in Hong Kong, New York, London et al.

The two other strategies also are exposed of their respective Achilles heel. In December 2003, the cabinet bailed out two state banks with USD 45 billion from its forex stash, yet the innovative national savings scheme was none other than supplying more money and posing inflation pressures.

The central bank has managed to suck in idle funds through the following means. It sold special notes in the interbank market recovering a net USD 67.4 billion last year, raised the depository requirement ratio for commercial lenders to 7 percent, and is ordering them to live up to the 8 percent minimum of capital adequacy ratio.

But such activities accompany huge costs, both implicitly and explicitly. Mr. Zhou will find it is a steep business when interests paid for notes are on a par with or even outnumber the investment returns from the forex reserve, like buying dollar- denominated Tresuries.

The central bank, however, seems determined to take on the expenditures on its own as long as the bottom line exists: the all-powerful cabinet, the State Council, clings on to renminbi's decade-long pegging, mounting stresses by Western leaders notwithstanding.
From www.hexun.com, Page 1, Wednesday, March 30, 2005
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LOAD-DATE: March 31, 2005

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Copyright 2005 The Financial Times Limited
Financial Times (London, England)

March 2, 2005 Wednesday
London Edition 1

SECTION: FT MARKETS; Pg. 46

LENGTH: 399 words

HEADLINE: China buys big to sustain dollar peg

BYLINE: By STEVE JOHNSON

BODY:


The scale of the upward pressure on the renminbi was highlighted yesterday when the People's Bank of China revealed it spent Rmb1,610bn (Dollars 195bn) on buying foreign currency last year.

The figure was 40 per cent greater than in 2003 as hot money flows poured into China, with speculators gambling on a renminbi revaluation in spite of the country's strict capital controls.

To maintain the renminbi's decade-old peg of Rmb8.276 to Rmb8.28 against the dollar, the People's Bank needed to counterbalance not only this hot money but booming foreign direct investment inflows.

"If such a startling figure does not convey the sheer scale of the bank's daily mandated operations in keeping the peg, the fact that this is a 40 per cent rise over the cumulative total for 2003 may well do," said Neil Mellor, currency strategist at Bank of New York. "The enormity of these flows is indicative of the forces waged against the bank."

The Dollars 195bn of intervention tallies closely with the Dollars 206.7bn increase in China's foreign exchange reserves to Dollars 610bn last year. This indicates that the vast bulk of Beijing's reserves remain in dollars; significant positions in currencies such as euros or sterling would have seen reserve growth far outstrip intervention last year

as these currencies appreciated markedly against the dollar.

The scale of the hot money inflows into China indicates the dilemma Beijing faces in easing the renminbi's dollar peg, which it has repeatedly promised to do.

A modest revaluation may be seen as increasing the chances of further small steps, thus eliciting even greater speculative flows.

"A 5 per cent revaluation may be seen as being the thin end of the wedge," said Aziz McMahon, currencies strategist at ABN Amro. "Speculators may think this is a one-way bet and flows could double again."

The PBoC chose to sterilise less than half of its intervention, draining a net Rmb669bn from the banking system through its open market operations.

Yet despite the subsequent rise in its monetary base of almost Rmb1,000bn, inflation has fallen from 5.3 per cent in August to 1.9 per cent in January, although concerns about asset bubbles remain, while gross domestic product growth remains high, at 9.5 per cent.

Beijing's ability to keep inflation under control has lessened the likelihood of a near-term revaluation of the renminbi, at least in the eyes of speculators.

LOAD-DATE: March 1, 2005

LexisNexis(TM) Academic - Document

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Copyright 2005 The Financial Times Limited
Financial Times (London, England)

April 25, 2005 Monday
London Edition 1

SECTION: ASIA-PACIFIC; Pg. 12

LENGTH: 420 words

HEADLINE: Bank chief says China may speed currency revaluation RENMINBI:

BYLINE: By GEOFF DYER

DATELINE: BOAO

BODY:


China could accelerate plans to reform its controversial currency regime, because of mounting international pressure, the head of the country's central bank admitted at the weekend.

Zhou Xiaochuan, governor of the People's Bank of China, said the government was still working on the "sequencing" of a potential policy change, but acknowledged that encouragement from abroad could result in a quicker decision.

"If there is more pressure from outside, it may force us to speed up our reform," said Mr Zhou, speaking at the Boao Forum for Asia on Hainan, an island in southern China.

The pressure on China to let its currency rise against the US dollar has increased in the last week, after the US and several other members of the G7 group of leading industrial nations called for China to take immediate action on its foreign exchange policy.

The US Congress and European Union are examining possible tariffs or other restrictions on Chinese imports. Alan Greenspan, chairman of the US Federal Reserve, and John Snow, US Treasury secretary, said last week it was China's responsibility to act now.

Non-tradeable forward contracts based on the renminbi jumped sharply last week as investors expected Beijing to ease its dollar peg. The discount on one-year non-deliverable renminbi-dollar forwards widened 550 points on Friday and 950 points during the week to 4,600, the widest level since early January.

This implied that the market was betting on an exchange rate of Rmb7.818 to the dollar in 12 months' time. Although China has fixed its currency at around Rmb8.3 to the dollar for over a decade, the government has indicated for some time that it was preparing a shift in policy. China's sharply rising exports and foreign exchange reserves have prompted growing accusations that the currency is undervalued.

Mr Zhou stressed there was no timetable yet for a change in policy. "We have a very clear target in this regard, but we have our own sequence," he said. "We are doing some preparation, for example the reform of the financial sector, to enlarge the role of the foreign-exchange market." Another leading Chinese official at the conference said investors should not expect a large currency appreciation.

"You can't expect the renminbi to appreciate by 10 per cent tomorrow. It would be disastrous for China as well as to other countries," said Wei Benhua, deputy chief of the state administration of foreign exchange. "If we adjust a little bit it will not contribute a great deal to reducing the trade deficit with the US."

LOAD-DATE: April 24, 2005

FT.com / International economy - China �should end renminbi�s dollar peg�

FT.com / International economy - China �should end renminbi�s dollar peg�
China ‘should end renminbi’s dollar peg’
>By John Burton in Singapore and Richard McGregor in Beijing
>Published: April 27 2005 20:22 | Last updated: April 28 2005 05:40
>>
The World Bank on Wednesday said China should revalue the renminbi and abandon the dollar peg in favour of a link to a basket of currencies.

It warned that without revaluation, speculative capital flows could destabilise economies in the region.

The bank, which has long called for greater currency flexibility in China and developing Asia, also said Malaysia should let its currency appreciate.

Homi Kharas, the bank's chief economist for the region, said there was no imminent risk of a financial crisis caused by currency speculators, like that in the late 1990s, but “very large volumes of money” flowing into the region threatened economic distortions.

He suggested that China link its currency to a foreign exchange basket. “It's really a question of timing, and timing depends on circumstances,” he said, adding that Malaysia should allow its currency to appreciate for the same reasons.


>
>>
>Renminbi
>>
>>
>

>>
Hot money inflows to China, propelled by expectations of an adjustment to the renminbi's decade-old peg to the US dollar, have themselves become an added source of pressure for revaluation.Go there
>
>
Shifting the peg to a basket of the dollar, yen, euro and other currencies might also help defuse growing protectionist pressures in the US. Finance ministers from the Group of Seven industrialised economies, led by the US, have upped the pressure on China to move immediately towards a more flexible currency regime.
Zhou Xiaochuan, the governor of the People's Bank of China, said at the weekend that foreign pressure might accelerate Beijing's so far undisclosed timetable to introduce greater exchange rate flexibility. But he gave no indication of when any change might come.

The World Bank predicted that economic expansion in east Asia, excluding Japan, would slow to 6 per cent this year from 7.2 per cent in 2004 due to sluggish global demand, higher oil prices and efforts to curb China's rapid growth rates. The bank predicted China would achieve a soft landing, with the economy's growth expected to slow to 8.3 per cent this year and 7.5 per cent in 2006 from 9.5 per cent in 2004.

But Mr Kharas said that the bank remained “gun shy” about its forecast, because it had been predicting a soft landing for some time. “In China, the authorities will need to find a way to make domestic assets more expensive for foreigners. In other countries, there is room to expand investment and consumption to counter slowing world demand,” said Mr Kharas.

The lifting of quotas on textile exports from China would probably increase China's trade surpluses in the short term, contributing to the world's sizeable economic imbalance, he added.

The region had a chance to undertake more structural reforms in the financial sector and capital markets, because high economic growth rates after 2001 had meant stronger finances for local governments, banks and companies, he said.

The bank said that growth remained uneven across Asia, but regional economies were achieving more balanced growth as increased consumer spending and investments reduced dependence on exports.

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Who will benefit from US trade deficit with China?

Who will benefit from US trade deficit with China?: "searchword"



Wednesday, Apr 27 2005 Beijing Time


Who will benefit from US trade deficit with China?
Last Updated(Beijing Time):2005-04-26 09:39

By Guan Jinyong

Recently, some US politicians and businessmen request the government to establish various measures to crack down on China because of US facing the adverse balance of trade with China. However, the surpluses in the Sino-US trade accounted on the Chinese side actually have fallen into the purses of the American enterprises, while Chinese enterprises just gained a little manufacturing fee. Some Americans, who have gotten the profits, still complained a lot.

According to the statistics, the US trade deficit with China was US$162 billion in 2004, ranking the top among the US trading partners. As a result, some American councilors declared that, the RMB was greatly undervalued after it had been in conjunction with the US$, which made the Chinese goods stands in an unfair beneficial position in the global market to defeat the US manufacturers and workers, and eventually caused the sharp rising US trade deficit. Thus the United States should take some actions to this.

The disputes between US and China should be solved through consultations instead of putting forward the aggressive amendments. Releasing the RMB exchange rate right now will destroy the bank system of China as well as impact negatively the American companies that depend on China's import. The chief economist from Morgan Stanley Asia indicated that "It is really difficult to find someone who are dissatisfied with the Sino-US trades in America, because many got their jobs and the US companies earn great profits from these trades with China, while China just only got the small part. It's weird for me that there are always someone raising the big stick of trading sanction indiscriminately."

It is reported that the total US import from China in February reduced by 17 percent, reaching the lowest from last June and the US adverse balance of trade with China also reduced to US$ 13.9 billion, the lowest from last May. But the US imports in February still increased US$ 23.2 billion with the growth rate of 6.8 percent. In the first two months of this year, the calculated trade deficit of the United States is also up to US$ 717.2 billion with the annual interest rate, which is US$ 100 billion or so higher than the history record of US$ 617.1 billion. Obviously, China should not be mainly responsible for the US unfavorable balance of trade, and China has already taken up less and less weight in the US trade deficit.

According to the latest data from Morgan Stanley, the American companies at least took away the profits of US$ 60 billion from the total amount of US import from China in 2004, sharing 10 percent of the total companies profits calculated by the Standard & Poor's 500 Index. About 4 to 8 million domestic occupations in the United States are related with the import from China. In other words, China only earned the low primary manufacturing fees by selling the products to the US, but the larger part of the added value of the products were all taken away by the American companies investing in China. Contrarily, it is thought that in the US its unfavorable balance of trade is all on account of China.

In the economists' opinion, whether Chinese foreign trade is fair or not should be judged by the total trade surplus. In the past few years, the total surplus of the Chinese foreign trade is only 2 percent of the annual GDP, which was minus value in the first half of 2004. Among the exporting enterprises in China, only 40 percent of them are completely owned by Chinese and the surplus 60 percent are occupied by foreign-funded enterprises. The data further show that China is not the main factor that caused the trade unbalance in the United States.

The unemployment in the American manufacturing industry is partly due to the developing countries, but this mainly attributes to the descending competitiveness of the American manufacturing industry. This kind of unemployment as the result of the competitiveness decline of the manufacturing industry is common all over the world, therefore in Europe and Japan many people lose their jobs every year, even China itself had lost about 6.5 million occupations from 1998 to 2003. There are some pains but also some gains on the unemployment issue. For instance in China, there are a great deal of jobs provided in the building industry and service industry lately.

Experts hold that China has its own distinctive competitiveness in the international market. China has the vast local market, and open trade system that is even superior to some developed countries. Moreover China has high quality labor force and good infrastructure, lays low tax on foreign capitals, and adopts the coherent economy reform policy, especially that China's independent creative abilities are much stronger than those of other developing countries.

The economic development in China will definitely affect the old trading structure of the world, and will necessarily create the new structure. But where the shoe pinches is that we should treat it objectively, not one-sidedly.




Source:CE.cn

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No change in sight for Renminbi rate

Home>News Center>Bizchina
No change in sight for Renminbi rate
(Agencies)
Updated: 2005-04-04 15:40

Pinpointing a rational exchange rate level for China's yuan, either theoretically or practically, is hard, according to a central bank vice governor quoted by state media on Monday.
Reform of the yuan would focus on improving the exchange rate mechanism, vice governor Wu Xiaoling was quoted as saying in the official China Securities Journal.

"The renminbi (yuan) exchange rate has come under pressure, but the crucial point is not the level," Wu said at a forum in Beijing.

"Nobody can work out theoretically what is the balanced and rational exchange rate. Practically it is very hard to fix the rational level of any exchange rate."

The remarks were the latest signal from Beijing that it will not rush to overhaul its fixed-currency system, which the United States and other western countries complain makes Chinese exports unfairly cheap.

The yuan has been pegged to about 8.28 to the dollar since the mid-1990s.



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No change in sight for Renminbi rate

Economists back yuan policy

Economists back yuan policy
Economists back yuan policy
(China Dailyl)
Updated: 2005-04-09 08:57


China is doing the right thing rejecting requests from trading partners to adjust its currency regime, according to financial officials and economists attending the Beijing Forex Conference 2005 on Friday.

"China does not operate a competitive currency policy and its foreign exchange policy is transparent and consistent," said Desmond Supple, head of Asia research at Barclays Capital, the investment banking division of UK-based Barclays Bank PLC.

He dismissed accusations that China has taken advantage of a cheap renminbi to become more competitive in trade.

He told the conference that the Chinese Government's refusal to change its forex regime can be viewed as simply wanting to maintain the consistency of its currency just as it did during the 1997 Asian financial crisis.

He added: "Any change of the renminbi regime has to go with the advancing process of China's financial reform."

His words were echoed by Long Yongtu, secretary-general of the Boao Forum for Asia.

"China's banking system reform is the premise of any economic reform," said Long.

He said that foreign trade was not the only engine for China's economic growth. Economic reform, domestic consumption, and foreign trade and investment are the major driving forces of China's economic growth, he said.

Long added that to liberalize the capital account, China must have a mature banking system, strong central bank supervision and a developed secondary financing market.

"It is unlikely China would change its forex regime in the foreseeable future," Long said. "The country has to strike a balance between a more flexible forex regime and a largely stable one."

Supple said the strong inflow of foreign speculative capital is also making it less possible for the Chinese Government to adjust its forex regime this year.

"We see no evidence of any slowdown (of speculative capital inflow) in the first quarter of this year," Supple said.

He added that China's forex reform requires the Chinese Government be confident that the country has achieved a soft landing from the 2002-04 investment boom and that the current problem of speculative capital inflow has been contained.

However, the US Senate on Wednesday threatened to impose a punitive tariff of 27.5 per cent on imports from China, if the government does not adjust its forex regime within six months. Advocates of the policy said the renminbi is undervalued, which has disadvantaged US manufacturers and caused the large US trade deficit with China.

FM rebuts US threat of economic sanctions

FM rebuts US threat of economic sanctions


Home>News Center>Bizchina
FM rebuts US threat of economic sanctions
By Qin Jize and Zhang Dingmin (China Daily)
Updated: 2005-04-08 06:39


China delivered a sharp rebuke yesterday to the US Senate's threat to impose economic sanctions if Beijing fails to change its current currency policy.

Foreign Ministry spokesman Qin Gang said in Beijing the latest analysis by the International Monetary Fund showed that China's currency does not appear undervalued.


Foreign Ministry spokesman Qin Gang takes a question at a regular press briefing in Beijing April 7, 2005. [newsphoto]
"When determining whether the currency is or is not undervalued you do not only take into consideration bilateral trade but multilateral trade as well," Qin told the regular briefing.

"China has trade surpluses with the United States yet the country is experiencing a big trade deficit with many of its Asian trading partners," he said, adding that the United States should adjust its economic imbalance by looking at its own reasons.

China saw faster import increases last year while trade was basically balanced and tremendous reform work was done to improve the renminbi exchange rate mecha-nism.

He said China is willing to settle any trade disputes with the United States through equal negotiations so as to push forward the healthy and stable development of the bilateral trade.

A considerable part of Chinese exports are produced by China-based factories funded by overseas companies, including US firms.

"Most of the profits go to foreign investors and the Chinese side typically takes a small part, although the production is based on consumption of Chinese resources and energy," said Wang Yuanhong, a senior analyst with the State Information Centre.

Meanwhile, Qin said China supports reforms of the UN Security Council, but said priority should be given to increasing representation of developing countries.

Qin said the reform of the UN is of great importance and should help build solidarity among member countries.

He said the consensus-seeking process should be characterized by wide and patient discussions by every country.

He said such discussions are the foundation of the UN and should be a priority when dealing with important issues.

He said to force the development of immature proposals would hurt the solidarity and authority of the UN Security Council.

Chinese Ambassador to the United Nations Wang Guangya said on Wednesday China supports reforms of the Security Council, but "is not in favour of setting an artificial time limit for Council reform and still less of forcing through any immature proposals lacking consensus in the form of a vote."

UN Secretary General Kofi Annan delivered a report to the UN General Assembly on March 21, calling for a decision by the General Assembly on the expansion of the 15-nation Security Council before world leaders gather in New York in September for a UN summit.

The UN chief also expressed veiled support for a vote by the assembly if no consensus could be reached after "healthy discussions."


(China Daily 04/08/2005 page2)



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Yuan revaluation won't help US trade deficit

Yuan revaluation won't help US trade deficit


Home>News Center>China
Yuan revaluation won't help US trade deficit
(Xinhua)
Updated: 2005-04-11 14:54


No matter whether China revalues it currency or not, the United States trade deficit will remain unaffected, said Chinese financial experts.

The US Senate passed a bill Wednesday, saying it would slap a 27.5 percent tariff on Chinese imports if China does not revalue its currency within 180 days.


A clerk at the Hai'an sub-branch of China Construction Bank in Jiangsu counts the renminbi notes in this March 2005 file photo. The US has been pressing hard for a renminbi revaluation, but experts and economists say there is no hurry for the exchange rate adjustment and yuan revaluation will not help the US to cut its trade deficit. [newsphoto]
"This is an old trick of the United States to make currency politicized," said Li Yang, head of Institute of Finance of Chinese Academy of Social Sciences.

In the 1980s the United States also criticized Japan on currency matters.

Li said, "What the United States has done is to claim that because China has gained great profits from controlling its exchange rate, it should be responsible for trade deficit of the United States."

"However, whether China revalues its currency or not will not be helpful for the United States to solve its financial and trade deficit problems. This is because the deficit is rooted in the structure of the United States, that is, the imbalance between savings and investment."

Thursday, Qin Gang, spokesman of the Chinese Foreign Ministry, in response to the new bill, said, "If one country's fiscal deficit could not be made up by its own private savings, it has to go to foreign exchange inflows, which usually causes deficit problem in current account."

"The United States should look more into domestic means to restore its economic balance."

Yi Xianrong, a colleague of Li, said the pay that Chinese workers get are much less than what the US workers get. So even if the RMB is revalued by 50 percent or 100 percent, it cannot change the fact that the cost of Chinese labor is much lower.

Yi said China's surplus in Sino-US trade does not indicate that all benefits go to China. The US people can buy inexpensive and good products from China and the profits for Chinese exporters are lesser than for US importers. At the same time, China has bought large amount of treasury bonds from the United States.

"So we can say that the United States has shared the fruits of China's economic development," Yi said.

A report from the International Monetary Fund said that the RMB, China's currency, has not been undervalued. The US Treasury Department released a report last December, saying that the Chinese government does not trade unfairly with the United States by controlling the RMB exchange rate.

Yi said the RMB exchange rate cannot be adjusted rashly since we cannot find an appropriate point to relate it to the US dollar. What's more, in current circumstances, adjusting may bring risks.

Guo Shuqing, former director of the State Administration of Foreign Exchange, said the yuan fluctuates simultaneously with the US dollar. Within the same range it is basically stable against the dollar.

"Following the Asian financial crisis in 1997, currencies in most of China's neighboring countries depreciated, but a strong dollar has pushed higher the renminbi exchange rate on average from 1997 to 2002. Only after 2002 did the dollar start to weaken -- together with the yuan," Guo said.

Li Yang said China has made "remarkable efforts" to improve the Chinese exchange rate system and that a judgment on whether the currency has been undervalued should be made from the perspective of the country's position in the world economy.

On March 14, Chinese Premier Wen Jiabao said China is working on a plan for a more flexible exchange rate for its currency, but the specific measures might come around unexpectedly.




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Bush, US Senate jerk up pressure on yuan

Bush, US Senate jerk up pressure on yuan


Home>News Center>China
Bush, US Senate jerk up pressure on yuan
(Agencies)
Updated: 2005-04-20 10:28

US President George W. Bush claimed on Tuesday that Chinese Government was considering taking an interim step toward easing yuan currency peg with the US dollar, according to a Reuter report.

An interim move could help ease Sino-US trade tensions, but Bush said the United States would keep the pressure on China to "eventually" let markets set the value of the yuan.

Some U.S. lawmakers are threatening to penalize China with punitive tariffs, but Bush administration officials say they cannot support such provocative legislation at this point, the report said.

"There have been some indications that they're thinking about ... an interim step toward floating the currency. We're constantly urging them, if they're going to take that step, to take it as soon as possible and eventually get to ... a currency which floats," Bush said in an interview with CNBC.

Bush sought on Tuesday to play down concerns that China was trying to crowd the United States out of energy markets. "I don't think there's a kind of economic war plan," Bush said. "I do think they're trying to ... satisfy a huge appetite for a massive economy growth, a fast-growing economy."

Days ago, Bush said that China is a “great country growing like mad”, and blamed China’s rising oil consumption for the gasoline price hike in the United States.
Bush administration and American manufacturers argue the currency peg makes U.S. imports more expensive and Chinese exports cheaper.

"Obviously we're at a competitive disadvantage to the extent that their currency won't float," Bush said in the interview. But he added: "It's ... certainly not going to be a panacea to get them to float the currency."

Bush said he did not know when Beijing would act. "It's hard for me to predict," Bush said, adding that the administration will "continue to press" Beijing on the issue.

U.S. Treasury Secretary John Snow, in testimony before the U.S. House of Representatives Committee on Financial Services, reinforced the message that "now" is the time for China to loosen its exchange rate.

But he rejected suggestions from Sen. Charles Schumer, a New York Democrat, that senior administration officials had privately signaled their support for Senate legislation aimed at jerking up pressure on China to revalue yuan.

"I don't support, as you know, the type of legislation that has been talked about that would impose a tariff on everything coming out of China," Snow said. "I'm sympathetic to the ideas behind it. ... I just don't think that's the right way."

Schumer and Sen. Lindsey Graham, a South Carolina Republican, have crafted legislation threatening China with a 27.5 percent across-the-board tariff unless it stops pegging the yuan at 8.27 to the dollar.

The US Senate voted 67-33 in favor of that measure earlier this month. The victory prompted Senate leaders to promise a second vote on the bill before July 27 if they agreed to drop the measure until then.

Although Bush administration officials have previously disavowed the bill, Schumer told reporters he had been received a different message in private. "I have gotten signals from the administration, quiet signals, that they're happy we're doing this," Schumer said.

Graham did not go as far as Schumer in claiming quiet administration support for the bill, but said: "I think there's understanding in the administration that ... the more the House and Senate reacts to this problem (of China's currency peg), the more they're in power."




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Officials react angrily to US moves on yuan

Officials react angrily to US moves on yuan
Officials react angrily to US moves on yuan
By Xu Binglan (China Daily)
Updated: 2005-04-25 06:10



BOAO: China's top financial officials reacted to re-emerging calls from across the Pacific to force China to revalue its currency by saying it was China's own business and others should mind their own.

The remarks won wide support from international financial officials at the Boao Forum for Asia.

China sees its domestic development as the most important aspect in deciding its foreign exchange policy and does not "pay attention solely to the trade deficit of certain countries," Wen Benhua, deputy director of the State Administration of Foreign Exchange, said yesterday in a panel discussion at the forum.

But he added that the country would take into account any impact a revaluation would have on its neighbouring countries should it decide to move in this regard.

The same day, central bank chief Zhou Xiaochuan said China had its own procedures for reforming its foreign exchange system.

The comments were clearly directed at the US Congress and its proposal to take punitive measures against what the United States believes is an undervalued renminbi.

Wei said the US trade deficit was fundamentally the result of a flawed US economic policy. In addition, China's trade surplus should be seen from a multilateral angle, and not just from the perspective of bilateral trade, he said.

"Don't forget China has a deficit with Japan, some ASEAN countries, and a number of European countries. We need to consider the issue in a worldwide context," he said.

Wei said he discussed the issue with US financial officials recently, telling them: "This (trade deficit) is your problem. You need to put your own house in order before you blame your neighbour."

A flexible foreign exchange rate system is generally a good thing, but "one does not do it for the wrong reason," said Roberto de Ocampo, president of the Asian Institute of Management and the Phillipines' former secretary of finance.

He said many of China's exports were partly processed in other parts of Asia although the final products were assembled in China.

"Unfortunately, this particular relationship among countries in Asia is not appreciated by those pressuring for a revaluation of the Chinese currency, to the point that even now there are discussions in the US Congress for protectionist measures in the form of legislation involving tariffs and so forth directed at China.

"That is the wrong solution to a misread problem."

China should continue to strengthen its financial sector before making significant moves in its foreign exchange management, he said.

"(China should) not start from a conclusion about its exchange rate and work from there to the financial sector. It should be the other way around," he said.

Khempheng Pholsena, vice-president of the Asian Development Bank, said she has every confidence in China's ability to make a decision on foreign exchange system reform.

"When and how much (China will change its foreign exchange system), is up to the PRC (People's Republic of China). The PRC has the wisdom," she said.


(China Daily 04/25/2005 page2)

Bloomberg.com: Japan

Bloomberg.com: Japan
Yen Gains; China's Zhou Says Yuan Shift May Be Accelerated
April 25 (Bloomberg) -- The yen rose to a one-month high after Chinese central bank governor Zhou Xiaochuan said his country may speed up preparations to loosen the yuan's peg to the dollar in response to pressure from the U.S., Europe and Japan.

A stronger yuan may reduce the competitiveness of China's exports compared with Japan. Nations like Japan and South Korea that have sold their currencies in recent years to curb gains may be more relaxed about letting them strengthen, said Monica Fan, head of global currency research at RBC Capital Markets.

Zhou's ``comments certainly strike me as very different from what they have said in the past, which is that they won't bow to outside pressure,'' said Fan, who is based in London. ``The yen will strengthen along with other Asian currencies.''

The yen climbed as high as 105.27 per dollar, the strongest since March 22, and was trading at 105.66 at 7:54 a.m. in Tokyo from 106.00 late on April 22 in New York, according to electronic foreign exchange trading system EBS. Japan's currency also rose to 137.87 versus the euro from 138.50. The dollar was at $1.3048 per euro from $1.3064.

Japanese companies sell more products to China, Asia's second- largest economy, than any other market. The yen is up 3.1 percent from a five-month low on April 5 after Federal Reserve Chairman Alan Greenspan and Treasury Secretary John Snow said China should cease trying to prevent the yuan from appreciating.

Zhou, who heads the People's Bank of China, said on April 23 their opinions may be taken into account. ``If there is more pressure from outside, it will force us to speed up our reform,'' he said at the Boao Forum on the Chinese island of Hainan. He gave no timetable.

Bullish on Yen

Sixty percent of the 70 strategists, investors and traders polled by Bloomberg on April 22 from Sydney to New York advised buying yen against the dollar, double the previous week. Fifty- nine percent said to buy Japan's currency versus the euro.

``The market has jumped onto China as an issue,'' said Kamal Sharma, a currency strategist in London at Dresdner Kleinwort Wasserstein. ``It started off with the Snow comments after the G-7 meeting and then we had Greenspan comments, which are having an impact. The dollar has definitely gone lower on this.''

Zhou, President Hu Jintao and Premier Wen Jiabao are among Chinese officials who have said over the past two years they are prepared to let the yuan trade more freely. Still, ``we don't see that the pressure is that strong right now,'' Zhou said.

China ``will positively, but prudently, accelerate the process of reform of the renminbi exchange rate,'' Wei Benhua, deputy director of the State Administration of Foreign Exchange, said yesterday.

`Ticking Over'

Complaints from the Bush administration and Congress will spur more buying of the yen this week, said Tony Norfield, global head of currency strategy at ABN Amro Holding NV in London.

``We are not looking for a move by China until the fourth quarter, but the noises coming from the U.S. will keep the issue ticking over and lift Asian currencies, including the yen,'' he said. Norfield recommended on April 21 that clients wager on the yen's advance versus the euro.

Japanese investors are more bearish on the dollar versus the yen, according to a survey of clients by the Bank of Tokyo Mitsubishi Ltd.

The proportion of customers who said they were dollar ``bears'' increased to 29.6 percent from 19 percent the week before. The number of ``bulls'' fell to 18.5 percent from 33.3 percent, the survey showed.

Bank of Tokyo-Mitsubishi, a unit of Japan's second-largest Lender by assets, each Friday surveys about 40 Japanese companies, including exporters, importers and foreign banks in Japan, on their outlook for the dollar against the yen.



To contact the reporter on this story:
John Brinsley at At jbrinsley@bloomberg.net

Last Updated: April 24, 2005 18:58 EDT

China Working Out Yuan Reform Timetable - Yahoo! News

China Working Out Yuan Reform Timetable - Yahoo! News
Back to Story - Help
China Working Out Yuan Reform Timetable By Tamora Vidaillet
Sat Apr 23, 8:03 AM ET



China's central bank governor said on Saturday there were no serious political or technical obstacles to reform of the tightly held yuan currency but the timetable for any change was still under review.

Zhou Xiaochuan declined to comment on when China might move on the yuan, also called the renminbi, but said expectations were "too high" that a change in the forex regime could resolve problems like trade friction with the United States.

China's yuan policy has been a bone of contention with the United States, which has repeatedly called for a change in the decade-old "peg" to the dollar to relieve pressure on the U.S. trade deficit with China which hit $162 billion in 2004.

U.S. manufacturers complain China keeps the currency artificially weak at the cost of millions of American jobs.

Work had to be done to strengthen the big commercial banks, to develop China's foreign exchange market and to reduce some "over-control in the foreign exchange side," Zhou told Reuters in an interview on the sidelines of the annual Boao economic conference on the tropical Chinese island of Hainan.

Asked what political obstacles remained before a move on the yuan, Zhou said: "There are, I think, no serious political obstacles. We say that for the exchange rate regime, technically we are ready. But for the reform sequencing, we have our own sequencing considerations.

"Whether some preparations are already fully done is under certain kinds of review," he added. "People still have a different opinion on that."

Zhou also sought to temper global expectations of the impact of a move on the Chinese currency , virtually pegged at about 8.28 yuan to the U.S. dollar.

YUAN UNDERVALUED?

Foreign countries have long argued that the yuan is undervalued and therefore gives Chinese exporters an unfair advantage in global markets. Exports in the first quarter were 35 percent higher than a year earlier.

"They may expect that this change can solve a lot of problems, substantially solve those problems," Zhou said.

"We think it's not very realistic, so it needs international coordinated effort, especially on how the U.S. government can reduce their trade deficit. It's not so much dependent on the (yuan) exchange rate."

Some U.S. lawmakers are threatening to penalize Beijing with punitive tariffs, but Bush administration officials say they cannot support such provocative legislation at this point.

On Thursday, U.S. Federal Reserve chief Alan Greenspan said that growing economic pressure would force China to alter its yuan policy, and the sooner that happened, the better.

Chinese officials have suggested the aim is to make the yuan more responsive to market forces rather than simply push through a one-off appreciation, and stress the need for preconditions such as a healthier financial system and a stable economy.

Zhou continued in that vein on Saturday, outlining a hefty reform program that still had to be carried out to banks and foreign exchange markets.

"Our main consideration is mainly strengthening our financial institutions, especially large domestic commercial banks and the other important financial institutions," he said.

"Second, is to some extent reduce the over-control in the foreign exchange side, especially over some of the capital account transactions that can expand the market supply/demand growth to determine the exchange rate.

"The third one is to further develop our foreign exchange market including market mechanisms and some new products to let the domestic clients use the foreign exchange market to hedge foreign exchange risk and for other purposes."

Later, addressing the forum, he signaled the country was on a clear path of reform, and noted that international pressure was not all bad and would force China to speed up reforms to keep conflicts from accumulating.



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