LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - DocumentCopyright 2005 The Financial Times Limited
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 8
LENGTH: 774 words
HEADLINE: Investors ready to bet on further revaluations OUTLOOK FOR RENMINBI:
BYLINE: By MURE DICKIE
DATELINE: BEIJING
BODY:
When China scrapped the renminbi's peg to the dollar this week, it tried to reassure doubters by offering answers to hypothetical queries such as "Why introduce reforms to improve the foreign exchange rate setting mechanism?"
But the central bank's unusual Q&A release did little to address the questions highest on many minds: what Thursday's move actually means for exchange rate policy and whether the 2.1 per cent revaluation that accompanied de-pegging is just a prelude to further renminbi rises.
Chinese financial experts said yesterday it was too early to predict with confidence the likely workings of the People's Bank of China's new "managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies".
But some investors were clearly prepared to wager that the new mechanism, which replaced an effective managed peg to the dollar that had endured since 1994, meant more renminbi revaluation ahead.
In Singapore, one-year renminbi non-deliverable forwards (NDFs) - instruments that allow bets on the Chinese currency - rose to around 7.64 per dollar, a level that predicts further revaluation of over 6 per cent by mid-2006.
"The expected RMB revaluation has started!" crowed analysts at JP Morgan in Hong Kong.
With Beijing widely seen as bowing to international pressure to revalue this week, many observers believe that future US criticism will force further moves - and that pressure could grow quickly if China continues to rack up huge trade surpluses.
"If the 0.3 per cent daily trading limit is not fully used to let the renminbi appreciate (against the dollar), there may be pressure," says Ha Jiming, chief economist at China International Capital. "I personally feel it's possible the renminbi will rise 5 per cent this year."
Peng Xinyun, a researcher at the Chinese Academy of Social Sciences, says the People's Bank will interfere in the market to prevent any unexpectedly fast appreciation, but could choose to let the renminbi gradually rise to a"reasonable level" by mid-2006.
"The renminbi revaluation will accelerate the flow of speculative capital into China (so) another adjustment of the rate is very likely in the second half of this year," says Mr Peng.
Such expectations are themselves likely to fuel renewed flows of what the Chinese call "hot money" or "floating capital" - funds moved past China's capital controls for speculative purposes, and a bane of policymakers in recent years.
Some Chinese analysts close to the government are keen to stress that the renminbi is no one-way bet - a point underlined by the currency's slight decline yesterday on the state-dominated foreign exchange market.
Stability has long been a watchword for Chinese economic planners, and leaders have repeatedly waved aside foreign pressure for change, insisting that exchange rates are a matter of national sovereignty.
"From first to last, the Chinese government has insisted on independence and autonomy on the issue of the renminbi exchange rate," the People's Bank said in its Q&A release.
Xia Bin, of the Development Research Centre under the State Council, China's cabinet, waves aside US calls for much greater revaluation by saying the scale of Thursday's move was entirely appropriate - and he warns against assuming that more will come soon.
"I hope that some 'hot money players' and some speculators do not harbour unrealistic fantasies and do not come once again to gamble on the exchange rate system," Mr Xia says.
"I don't think. . . there will be any clear appreciation in the second half of the year. Don't harbour illusions."
Many analysts said it would be impossible to understand China's new exchange rate mechanism until it had been in operation for some months at least, when estimates might be made as to the currency basket adopted by the People's Bank.
However, the central bank could confound such hopes, since it is not clear how tightly the renminbi's level will be tied to the basket.
"In the (central bank) announcement, the word 'reference' was used, (while) words like 'link' and 'peg' were not used. This is a very important point," says Yu Yongding, a member of the bank's monetary policy committee and a longtime supporter of revaluation.
"By using the word reference, the central bank will maintain an important role in determining the exchange rate - that's my personal view," Prof Yu said.
A spokesperson for the People's Bank declined to explain how the exchange rate would be set, but pointed out that Thursday's reform was intended to ease trade imbalances, boost domestic demand and corporate international competitiveness, and promote greater economic openness.
LOAD-DATE: July 22, 2005
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 8
LENGTH: 774 words
HEADLINE: Investors ready to bet on further revaluations OUTLOOK FOR RENMINBI:
BYLINE: By MURE DICKIE
DATELINE: BEIJING
BODY:
When China scrapped the renminbi's peg to the dollar this week, it tried to reassure doubters by offering answers to hypothetical queries such as "Why introduce reforms to improve the foreign exchange rate setting mechanism?"
But the central bank's unusual Q&A release did little to address the questions highest on many minds: what Thursday's move actually means for exchange rate policy and whether the 2.1 per cent revaluation that accompanied de-pegging is just a prelude to further renminbi rises.
Chinese financial experts said yesterday it was too early to predict with confidence the likely workings of the People's Bank of China's new "managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies".
But some investors were clearly prepared to wager that the new mechanism, which replaced an effective managed peg to the dollar that had endured since 1994, meant more renminbi revaluation ahead.
In Singapore, one-year renminbi non-deliverable forwards (NDFs) - instruments that allow bets on the Chinese currency - rose to around 7.64 per dollar, a level that predicts further revaluation of over 6 per cent by mid-2006.
"The expected RMB revaluation has started!" crowed analysts at JP Morgan in Hong Kong.
With Beijing widely seen as bowing to international pressure to revalue this week, many observers believe that future US criticism will force further moves - and that pressure could grow quickly if China continues to rack up huge trade surpluses.
"If the 0.3 per cent daily trading limit is not fully used to let the renminbi appreciate (against the dollar), there may be pressure," says Ha Jiming, chief economist at China International Capital. "I personally feel it's possible the renminbi will rise 5 per cent this year."
Peng Xinyun, a researcher at the Chinese Academy of Social Sciences, says the People's Bank will interfere in the market to prevent any unexpectedly fast appreciation, but could choose to let the renminbi gradually rise to a"reasonable level" by mid-2006.
"The renminbi revaluation will accelerate the flow of speculative capital into China (so) another adjustment of the rate is very likely in the second half of this year," says Mr Peng.
Such expectations are themselves likely to fuel renewed flows of what the Chinese call "hot money" or "floating capital" - funds moved past China's capital controls for speculative purposes, and a bane of policymakers in recent years.
Some Chinese analysts close to the government are keen to stress that the renminbi is no one-way bet - a point underlined by the currency's slight decline yesterday on the state-dominated foreign exchange market.
Stability has long been a watchword for Chinese economic planners, and leaders have repeatedly waved aside foreign pressure for change, insisting that exchange rates are a matter of national sovereignty.
"From first to last, the Chinese government has insisted on independence and autonomy on the issue of the renminbi exchange rate," the People's Bank said in its Q&A release.
Xia Bin, of the Development Research Centre under the State Council, China's cabinet, waves aside US calls for much greater revaluation by saying the scale of Thursday's move was entirely appropriate - and he warns against assuming that more will come soon.
"I hope that some 'hot money players' and some speculators do not harbour unrealistic fantasies and do not come once again to gamble on the exchange rate system," Mr Xia says.
"I don't think. . . there will be any clear appreciation in the second half of the year. Don't harbour illusions."
Many analysts said it would be impossible to understand China's new exchange rate mechanism until it had been in operation for some months at least, when estimates might be made as to the currency basket adopted by the People's Bank.
However, the central bank could confound such hopes, since it is not clear how tightly the renminbi's level will be tied to the basket.
"In the (central bank) announcement, the word 'reference' was used, (while) words like 'link' and 'peg' were not used. This is a very important point," says Yu Yongding, a member of the bank's monetary policy committee and a longtime supporter of revaluation.
"By using the word reference, the central bank will maintain an important role in determining the exchange rate - that's my personal view," Prof Yu said.
A spokesperson for the People's Bank declined to explain how the exchange rate would be set, but pointed out that Thursday's reform was intended to ease trade imbalances, boost domestic demand and corporate international competitiveness, and promote greater economic openness.
LOAD-DATE: July 22, 2005
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