the us$ ...... wow!, page-11

re: the us$ ...... wow! ..... yak 2 Dah, how about the renmimbi is not freely convertible. How about the huge debts in the Chinese banking system due to lending to corrupt and useless State Owned Enterprises (a bit of an oxymoron).

You might find this story interesting. Following it is another story about US election strategies. The Bush brigade decided to pick on the Chinese so you will see all the planted stories about how bad China is. But don't blame Bush for any inbalance because consecutive administrations have had a strong US$ policy so that is why all the rest of the currencies dropped - the hedge funds could have fun selling down other currencies and making money - the US Treasury helped by saying they favoured a strong $. The chickens are now coming home to roost.

Thursday, September 18, 2003

China acts to slow cash inflows
ING cleared to invest in A shares amid speculation on moves to head off hot money after a cut in investment quotas


BEI HU

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Dutch financial group ING has become the eighth foreign institution to gain approval to invest in China's A-share markets amid speculation that Beijing is trying to slow the fund inflow through a capital-account liberalisation scheme to ease monetary growth and reduce foreign-exchange pressure.
The speculation has been fuelled by the mainland foreign-exchange regulator's granting of US$50 million investment quotas each to Deutsche Bank and HSBC, far short of what they sought.

There had been market rumours that the State Administration of Foreign Exchange (SAFE) was trying to reduce the size of the qualified foreign institutional investor (QFII) investment quotas for fear of hot-money inflow ahead of a widely anticipated appreciation of the yuan against major foreign currencies, a market source said yesterday.

However, a SAFE spokeswoman said: "Many factors are taken into consideration during the approval of investment quotas. You don't always get what you want.

"Some people have [arbitrarily] linked this to recent macroeconomic conditions."

The introduction of the QFII scheme, allowing foreign investors to buy yuan A shares and corporate and treasury bonds previously reserved for mainland investors, has also coincided with rapid money-supply growth that has become a regulatory concern.

HSBC had sought an initial US$100 million QFII investment quota, a spokeswoman in Shanghai confirmed.

Deutsche Bank previously told mainland media that it was eyeing a US$200 million investment quota. Its officials could not be reached for comment yesterday.

Of the seven QFIIs with approved quotas so far, Deutsche Bank and HSBC are believed to be the only two that received smaller investment quotas than they applied for, a source working closely with the QFIIs said.

While dismissing the hot-money theory, Citigroup global markets economist Huang Yiping said such a move would be in line with a recent spate of regulatory measures to encourage capital outflow.

"Now, the priority is to encourage capital outflow to reduce imbalances and therefore the pressure for yuan appreciation," he said.

Beijing's bigger concern might be to ensure that approved QFII investment quotas were used in full, the source close to QFIIs said.

China's M2 broad money supply surged 21.6 per cent year on year in the first eight months to 21 trillion yuan (HK$19.67 trillion), with 16.5 per cent growth in outstanding bank loans to 15.3 trillion yuan.

This has prompted the People's Bank of China's monetary policy board to warn that the "obviously excessive monetary loan growth" could lead to structural imbalances and an overheating of the economy. The central bank has resorted to raising banks' official reserve requirements and cracking down on illegal property and car loans to rein in loan growth.

Meanwhile, as China reports strong foreign direct investment, trade surpluses and mushrooming foreign-exchange reserves, pressure for a firmer yuan has mounted from Washington to Tokyo.

China has recently relaxed a number of foreign-exchange restrictions to boost overseas investment and spending in an attempt to ease the pressure to depeg the yuan.


Thursday, September 18, 2003

How Bush picked on China to win votes


STAFF REPORTER, REUTERS and ASSOCIATED PRESS in Washington

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Faced with a sputtering economy and an increasingly unpopular war in Iraq, and with an election on the horizon, US President George W. Bush needed an issue that would win big on the home front.
After months of internal debate earlier this year among Mr Bush's advisers, it was decided that issue would be China, administration and business sources said.


The central complaint was that China had kept the value of the yuan artificially low to gain a trade advantage over US-based manufacturers. Administration officials have poured on other complaints as well, ranging from rampant intellectual property theft to trade barriers and forced transfers of technology.

China presented an easy target, with ample evidence to back up the charges.

But the decision to ratchet up the pressure was controversial from the start. Economists warned of the potential for destabilising China's economy and setting off a financial crisis.

Sources say officials at the Treasury Department raised objections to the policy shift, since a revalued yuan could mean American consumers paying more for Chinese goods. But the lure of scoring points on the domestic front proved too powerful to resist.

US manufacturers have shed 2.7 million jobs over three years and they blame China for their woes. The US industrial heartland is a critical base of support for Mr Bush in the run-up to next year's presidential election, and critics said the decision to take up the manufacturers' cause against China was largely a political calculation.

"The political pressures increased," an administration source said.

By seizing on the trade issue, Mr Bush boosted his support in rust-belt states such as Michigan, Ohio and Pennsylvania, and curried favour with powerful business groups like the National Association of Manufacturers. The association, the United States' largest manufacturing group, said yesterday it intended to file a complaint with the Bush administration against China for currency manipulation.

Former US trade representative Charlene Barshefsky called Mr Bush's decision "pre-election politics in the most obvious sense".

The chief advocate of challenging China was the former director of the National Economic Council, Lawrence Lindsey, who, sources say, urged a policy of "quiet diplomacy".

Others opposed the policy. Glenn Hubbard, who served as chairman of the White House Council of Economic Advisers until March, argued it made little economic sense. Economists under then-Treasury secretary Paul O'Neill were also opposed.

The rhetoric stemming from the new trade policy has been anything but quiet.

Mr O'Neill's replacement at the Treasury, John Snow, and Commerce Secretary Donald Evans have leaned heavily on the central government to revalue the yuan in recent months. Mr Evans is creating a special team to probe hurdles to fair trade and China will be the primary target. On the Labor Day holiday, which typically marks the start of the US campaign season, Mr Bush called Chinese policy on the yuan unfair and vowed to "deal with it accordingly".

As the level of rhetoric increases, so does the level of concern that domestic politics are pushing the Bush administration into a confrontation with China. The US Chamber of Commerce, which represents about three million businesses, is warning against provoking China. In a review of the status of bilateral trade, it has concluded China has a long way to go in meeting its World Trade Organisation obligations but is making an honest effort to comply.

Even some of Mr Bush's political allies have expressed concern about the direction in which trade relations are headed. US House Majority Leader Tom DeLay, a Texas Republican, said this week that Congress should not start a trade war with China and that the currency dispute was best left to the White House and trade officials.

Senator Charles Schumer, a New York Democrat, has sponsored a bill that would impose an additional 27.5 per cent tariff on all products made in China to compensate for its currency advantage.