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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
info@SinoCast.com
LOAD-DATE: March 31, 2005
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
info@SinoCast.com
LOAD-DATE: March 31, 2005
posted by Eastlaw at 2:08 AM
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