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China capable of diminishing pressure from RMB appreciation
(Xinhua)
Updated: 2004-12-02 17:19 China capable of diminishing
pressure from RMB appreciation
China is facing the new risk of being attacked by hot money, which is flowing
into the country in enormous amounts betting on the appreciation of renminbi,
the Chinese currency, but analysts say chances for speculators to win are quite
slim, for it is unlikely that the country will change its policy simply because
of pressures from outside.
"The speculators are unlikely to succeed as they did in the Asian financial
crisis seven years ago," said Vice-Chairman Wu Nianlu of the China International
Financial Society.
Some economists believe about US$100 billion in short-term speculative funds
sneaked into China in the year's first half.
But they agree this is still within China's capability to manage and it is
too early to conclude China would give in to pressures from speculative funds.
Premier Wen Jiabao's statement earlier this week has clearly conveyed a
signal that it is not the right time to make big changes in the country's
exchange policy.
"The more speculation (about a yuan revaluation) there is in society, the
more unlikely it is that the necessary measures can be undertaken," said Wen at
the Association of Southeast Asian Nations summit held recently in Laos.
His remarks are considered by analysts as China's ever strongest statement on
its currency exchange policy.
Hot money, which occurred after the 1980s, moves among different countries to
seek huge profits. Its sudden in- and out- flow would bring serious imbalance in
a country's international balance of payment and impair the financial system and
the economy at large, which was fully demonstrated in the Asian financial crisis
in 1997.
"But, it is hard for hot money to operate in China as the country does not
have a developed market of financial derivative products," said Yu Weibin,
financial expert with the Chinese Academy of Social Sciences.
As China has no marketplace for forward, futures, options, speculative funds
could not snatch money as easily as they did in Thailand and Japan in the 1990s,
said Yu. They could only sneak into China through exchanges into renminbi or
large-scale purchase of local goods.
China does not allow free capital flow as the case in some Southeast Asian
countries. Once the hot money enters into China, it is hard to flee away, said
Wu Nianlu.
In the past two years, speculators began to invest in China's real estate,
which is considered a "safe" way to make money. China 's housing price has kept
rising sharply despite the macro-control and government warnings about
"bubbles", which were partly caused by the entry of hot money, analysts
acknowledged.
If China does not loosen the yuan's exchange rate, large inflow of hot money
would cause inflation and the speculators expect to make profits out of rising
prices.
But, experts noted this was also unlikely to happen. China's macro-economic
control has proved to be quite effective and China has the ability to prevent
inflation through new rounds of macro- economic control.
During the Asian financial crisis, China maintained the basic stability of
yuan and made contributions to the region and even the international financial
market as a whole. Facing pressures to revalue its currency, China has told the
world it will reform its foreign exchange system, but all on the basis of
stability and in a gradual way.
The yuan exchange rate has for many years been a managed, floating one based
on market supply and demand, but moves within a very narrow band.
In fresh initiatives that economists said were to ease the call for yuan
appreciation, the State Administration of Foreign Exchange issued new rules to
facilitate the transfer of personal properties denominated in foreign currencies
abroad and the use of foreign exchange by Chinese students to study overseas.
The People's Bank of China, or the central bank, has also hiked the benchmark
interest rate of US dollar deposits for commercial banks.
President Hu Jintao said during a meeting with US President George W. Bush in
Chile a week ago that his country planned to further push forward the floating
of exchange rate + but only under the right conditions.
Under the commitment to the World Trade Organization three years ago, China
gave no timetable for the exchange rate's liberalization.
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