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China to ease upward pressure on renminbi
another case where the other guy blinked when Bush held firm on the lower dollar- maybeChina plans to allow exporters to keep more of their foreign currency earnings as it intensifies efforts to relieve upward pressure on its currency, a senior official signalled on Friday. Guo Shuqing, head of the State Administration of Foreign Exchange - a body beneath the central bank that manages the countryâs foreign reserves - also expressed concern over rising inflation and an incipient asset bubble. "The inflation rate is rising, and the asset bubble problem is starting to get worrying," he said. The pressure on the Chinese currency has come from continued strong inflows of speculative funds betting on a renminbi revaluation. Economists estimate that roughly $50bn in "hot money" inflows found their way into China last year, pushing the domestic money supply to record levels and fuelling inflationary pressures. The hot money largely represents funds brought back by local businessmen or overseas Chinese to benefit from a predicted renminbi appreciation. But Mr Guo made it clear that the Peopleâs Bank of China, the central bank, has no intention of caving in to speculators. He said Chinese companies would be able to retain more foreign currency and outward investment by Chinese would be encouraged - both measures to ease upward pressure on the renminbi. Inflows remained strong in January, with the foreign currency reserves rising to nearly $416bn, up from $403bn at the end of 2003. "The ways to reduce the balance of payments surplus include increasing imports, adjusting exports, expanding capital outflows, reducing capital inflows and enhancing the elasticity of the exchange rate," Mr Guo said. The strategy he outlined is a continuation of the central bankâs longstanding plan to rebalance demand between the two currencies in China by increasing demand for the dollar and decreasing demand for the renminbi. Allowing Chinese companies to retain more of their hard currency earnings from the first quarter of this year should reduce pressures on the renminbi money supply. Currently, the central bank buys all but a small portion of hard currency earned by exporters and repays them in renminbi. The government was also studying the Qualified Domestic Institutional Investor scheme, under which mainland Chinese would be allowed to invest in overseas stock markets through selected institutions - another step that would require the selling of renminbi and buying of US dollars. QDII would be implemented when the "conditions are mature". China would also limit illegal inflows of foreign funds into its stock markets, keep scrutinising "suspicious" foreign exchange deals and curb short-term foreign borrowings, Mr Guo added. Chinaâs longer-term plan is to allow the renminbi to fluctuate within a wider band than its current Rmb8.3 peg to the US dollar. Some analysts think greater flexibility will be introduced when upward pressure on the renminbi becomes unbearable. But one official said greater flexibility would only be introduced once demand between the dollar and the renminbi had reached rough equilibrium. hardball attitude, weâll see ... given that Bush is under pressure for the state of the economy here, and the Chinese leaders have less accountability for the results of their policies, they may pull that off. I hope not. Posted by: rkb 2004-02-29 |
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