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CHINA SET TO REDUCE EXPOSURE TO DOLLAR
SHANGHAI, Jan. 9 China has resolved to shift some of its foreign exchange reserves now in excess of $800 billion away from the U.S. dollar and into other world currencies in a move likely to push down the value of the greenback, a high-level state economist who advises the nation's economic policymakers said in an interview Monday.
As China's manufacturing industries flood the world with cheap goods, the Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb.
China now boasts the world's second-largest cache of foreign exchange behind only Japan and is on pace to see its reserves climb past $1 trillion later this year. Even a slight diminishing of the dollar as a percentage of those holdings could exert significant pressure on the U.S. currency, many economists assert.
In recent years, the value of the dollar has been buoyed by major purchases of U.S. Treasury bills by Japan, China and oil-exporting countries a flow of capital that has kept interests rates relatively low in the United States and allowed Americans to keep spending even as debts mount. Some economists have long warned that if foreigners lose their appetite for American debt, the dollar would fall, interest rates would rise and the housing boom could burst, sending real estate prices lower.
The comments of the Chinese senior economist, made on the condition of anonymity because the government disciplines those who speak to the press without express authorization, confirmed an analysis in Monday's Shanghai Securities News stating that China is inclined to shift some its savings into other currencies such as the euro and the yen, or into major purchases of commodities such as oil for a long-discussed strategic energy reserve.
In a report circulated this week, Stephen Green, senior economist with the bank Standard Chartered PLC in Shanghai, identified several signals that China is intent on limiting its exposure to the dollar not least, a recent pledge from the State Administration of Foreign Exchange to "actively explore more efficient use of our foreign exchange reserves."
"We believe this adds to the downside pressure the USD U.S. dollar is currently facing," Green wrote. "It is the first official expression from SAFE that they are looking at switching away" from the dollar.
The comments on SAFE's Web site reinforced earlier public warnings from Yu Yongding, an economist on the monetary policy committee of China's central bank, that the country's reserves are now vulnerable to a drop in the value of the dollar.
"The general trend for the U.S. dollar is continuously weakening," Yu said, speaking to reporters at a conference in Beijing last month. "Countries with huge foreign-exchange reserves will have their assets shrunken."
Last week, Hu Xiaolian, director of the foreign exchange administration, said China plans to "optimize the structure" of its reserves. Analysts took that to mean China would pursue a higher return than it can get from holding dollars by diversifying its reserves.
Not all economists anticipate negative repercussions for the U.S. economy. Were China and Japan to engineer a significant fall in the dollar, those nations also would suffer the consequences sharply diminished exports as Americans lose spending power, plus a drop in the value of their dollar assets.
"It is thus extremely unlikely that China would do anything to harm its own balance sheet," wrote Stephen Jen, an economist with Morgan Stanley, in a research note distributed Monday.
In 2005, the dollar rebounded against major foreign currencies as the Federal Reserve raised short-term interest rates making dollar assets relatively more attractive than others but has slid a bit early this year. Meanwhile, China continues to amass foreign-exchange reserves at a pace of roughly $15 billion per month.
Warnings about an impending Chinese sell-off in dollars emerged in July, as China slightly altered the way it sets the value of its currency, the yuan, bumping it up against the dollar by about 2 percent. At the time, China announced that it would gradually allow greater movement in the exchange rate something that has yet to materialize while also shifting from a system in which the yuan moves with changes in the dollar to one where it tracks a basket of currencies including the yen, the euro, the Hong Kong dollar and the South Korean won.
The move temporarily muted criticism on Capitol Hill from those who accuse China of currency manipulation, asserting that an artificially low yuan has made China's goods unfairly cheap on world markets. But as the implications of the new currency policy rippled out, some analysts suggested that China would thereafter have less need for dollars and greater need for the other currencies in the new basket, sending the greenback down and risking higher U.S. interest rates that would dampen economic growth.
China sought to quash such talk. In September, a senior central bank official told a ballroom full of international executives gathered in Beijing that China would not sell significant quantities of U.S. bonds, cognizant that such a move would "cause the price to plunge."
Even if a Chinese shift away from the dollar weakened the currency, that would probably not soothe tensions with those in Washington calling for an increase in the value of the yuan to help U.S. manufacturers. Unless China severs the link between the value of its currency and the dollar a move Beijing says could destabilize its economy then a weaker dollar would simply mean a weaker yuan as well, leaving in place the current debate over whether China's export earnings are being netted unfairly.
http://www.washingtonpost.com/wp-dyn/content/article/2006/01/09/AR2006010901042.html
China's Trade Surplus Tripled Last Year to $102 Bln
Jan. 11 (Bloomberg) China's trade surplus tripled to a record $102 billion in 2005, suggesting the U.S. and European Union may increase pressure on the nation to let its currency strengthen.
The December surplus reached $11 billion, the Beijing-based customs bureau said on its Web site today. That compares with the $11.6 billion median forecast of 18 economists in a Bloomberg News survey.
China's surplus is causing friction with the U.S., Europe and Japan, who say an undervalued currency gives Chinese exporters an unfair advantage. U.S. lawmakers are threatening to impose tariffs on Chinese imports and the European Union has said it may complain to the World Trade Organization about unfair trade practices.
``China has a major role in preventing the U.S. from imposing tariffs by taking ``significant action on the currency, Max Baucus, a ranking member of the U.S. Senate Committee on Finance, told reporters in Beijing yesterday. A yuan revaluation ``would have a considerable economic benefit and would also have a considerable symbolic and psychological benefit.''
Exports in December rose 18 percent to $75.4 billion and imports increased 22 percent to $64.4 billion, according to today's release. For all of 2005, exports jumped 28 percent to $762 billion while imports gained 18 percent to $660 billion.
Foreign investors poured $213 billion over the last four years into building factories in China to take advantage of low labor costs and falling trade tariffs. Overseas shipments have doubled in the same period, leading the U.S. and Europe to step up calls for a more freely traded currency.
Not Enough
The People's Bank of China's decision to revalue the yuan by 2.1 percent in July and let it fluctuate against a basket of currencies has failed to satisfy U.S. lawmakers. Senator Charles Schumer and U.S. Representative Phil English have both introduced legislation to impose tariffs on Chinese imports unless the yuan rises further.
China's exports have soared from $267 billion in 2001. That's three times as fast as growth in global trade, according to Morgan Stanley economist Andy Xie. The increase equals the value of Japan's 2005 overseas sales, Xie said.
The gains have put China on track to overtake Germany as the world's second-largest exporter. In the first 11 months of 2005, China's exports amounted to about three-quarters of Germany's, measured in dollars. In 2001, China's exports were less than half of Germany's, based on the average exchange rate between the dollar and the euro for that year.
Shipping Companies
Shipping companies and port operators are continuing to invest in China, betting that the trade boom will continue.
A.P. Moeller-Maersk A/S, Hutchison Whampoa Ltd. and three other companies said on Dec. 19 they are investing in the second phase of Shanghai's $16 billion Yangshan port, which is on track to be the world's busiest harbor by 2010. The expansion will double the city's cargo handling capacity by the end of the decade.
``We expect trade to grow at a high rate and probably close to what we've experienced in recent years, Tommy Thomsen, a partner in A.P. Moeller and head of its container business, said in a telephone interview on Dec. 19. ``Shanghai is positioned to become the world's largest port within three to four years.
China's exports have surged by an average of more than 30 percent over the past three years amid an investment boom triggered by the nation's entry into the World Trade Organization in December 2001. Companies supported by foreign investment accounted for almost 90 percent of technology exports in the first 10 months of the year and for more than half of total overseas shipments, according to commerce ministry data.
Economists including Paul Cavey forecast that export growth will cool to about 20 percent this year as the expansion in new production capacity tails off.
``Export growth has been driven by information technology products which has been a function of Taiwanese companies moving to the mainland, said Cavey, China economist at Macquarie Securities in Hong Kong. ``That structural outbuilding of Chinese capacity is now coming to an end.
http://www.bloomberg.com/apps/news?pid=10000087&sid=aNe24hieOCz0&refer=top_world_news
SHANGHAI, Jan. 9 China has resolved to shift some of its foreign exchange reserves now in excess of $800 billion away from the U.S. dollar and into other world currencies in a move likely to push down the value of the greenback, a high-level state economist who advises the nation's economic policymakers said in an interview Monday.
As China's manufacturing industries flood the world with cheap goods, the Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb.
China now boasts the world's second-largest cache of foreign exchange behind only Japan and is on pace to see its reserves climb past $1 trillion later this year. Even a slight diminishing of the dollar as a percentage of those holdings could exert significant pressure on the U.S. currency, many economists assert.
In recent years, the value of the dollar has been buoyed by major purchases of U.S. Treasury bills by Japan, China and oil-exporting countries a flow of capital that has kept interests rates relatively low in the United States and allowed Americans to keep spending even as debts mount. Some economists have long warned that if foreigners lose their appetite for American debt, the dollar would fall, interest rates would rise and the housing boom could burst, sending real estate prices lower.
The comments of the Chinese senior economist, made on the condition of anonymity because the government disciplines those who speak to the press without express authorization, confirmed an analysis in Monday's Shanghai Securities News stating that China is inclined to shift some its savings into other currencies such as the euro and the yen, or into major purchases of commodities such as oil for a long-discussed strategic energy reserve.
In a report circulated this week, Stephen Green, senior economist with the bank Standard Chartered PLC in Shanghai, identified several signals that China is intent on limiting its exposure to the dollar not least, a recent pledge from the State Administration of Foreign Exchange to "actively explore more efficient use of our foreign exchange reserves."
"We believe this adds to the downside pressure the USD U.S. dollar is currently facing," Green wrote. "It is the first official expression from SAFE that they are looking at switching away" from the dollar.
The comments on SAFE's Web site reinforced earlier public warnings from Yu Yongding, an economist on the monetary policy committee of China's central bank, that the country's reserves are now vulnerable to a drop in the value of the dollar.
"The general trend for the U.S. dollar is continuously weakening," Yu said, speaking to reporters at a conference in Beijing last month. "Countries with huge foreign-exchange reserves will have their assets shrunken."
Last week, Hu Xiaolian, director of the foreign exchange administration, said China plans to "optimize the structure" of its reserves. Analysts took that to mean China would pursue a higher return than it can get from holding dollars by diversifying its reserves.
Not all economists anticipate negative repercussions for the U.S. economy. Were China and Japan to engineer a significant fall in the dollar, those nations also would suffer the consequences sharply diminished exports as Americans lose spending power, plus a drop in the value of their dollar assets.
"It is thus extremely unlikely that China would do anything to harm its own balance sheet," wrote Stephen Jen, an economist with Morgan Stanley, in a research note distributed Monday.
In 2005, the dollar rebounded against major foreign currencies as the Federal Reserve raised short-term interest rates making dollar assets relatively more attractive than others but has slid a bit early this year. Meanwhile, China continues to amass foreign-exchange reserves at a pace of roughly $15 billion per month.
Warnings about an impending Chinese sell-off in dollars emerged in July, as China slightly altered the way it sets the value of its currency, the yuan, bumping it up against the dollar by about 2 percent. At the time, China announced that it would gradually allow greater movement in the exchange rate something that has yet to materialize while also shifting from a system in which the yuan moves with changes in the dollar to one where it tracks a basket of currencies including the yen, the euro, the Hong Kong dollar and the South Korean won.
The move temporarily muted criticism on Capitol Hill from those who accuse China of currency manipulation, asserting that an artificially low yuan has made China's goods unfairly cheap on world markets. But as the implications of the new currency policy rippled out, some analysts suggested that China would thereafter have less need for dollars and greater need for the other currencies in the new basket, sending the greenback down and risking higher U.S. interest rates that would dampen economic growth.
China sought to quash such talk. In September, a senior central bank official told a ballroom full of international executives gathered in Beijing that China would not sell significant quantities of U.S. bonds, cognizant that such a move would "cause the price to plunge."
Even if a Chinese shift away from the dollar weakened the currency, that would probably not soothe tensions with those in Washington calling for an increase in the value of the yuan to help U.S. manufacturers. Unless China severs the link between the value of its currency and the dollar a move Beijing says could destabilize its economy then a weaker dollar would simply mean a weaker yuan as well, leaving in place the current debate over whether China's export earnings are being netted unfairly.
http://www.washingtonpost.com/wp-dyn/content/article/2006/01/09/AR2006010901042.html
China's Trade Surplus Tripled Last Year to $102 Bln
Jan. 11 (Bloomberg) China's trade surplus tripled to a record $102 billion in 2005, suggesting the U.S. and European Union may increase pressure on the nation to let its currency strengthen.
The December surplus reached $11 billion, the Beijing-based customs bureau said on its Web site today. That compares with the $11.6 billion median forecast of 18 economists in a Bloomberg News survey.
China's surplus is causing friction with the U.S., Europe and Japan, who say an undervalued currency gives Chinese exporters an unfair advantage. U.S. lawmakers are threatening to impose tariffs on Chinese imports and the European Union has said it may complain to the World Trade Organization about unfair trade practices.
``China has a major role in preventing the U.S. from imposing tariffs by taking ``significant action on the currency, Max Baucus, a ranking member of the U.S. Senate Committee on Finance, told reporters in Beijing yesterday. A yuan revaluation ``would have a considerable economic benefit and would also have a considerable symbolic and psychological benefit.''
Exports in December rose 18 percent to $75.4 billion and imports increased 22 percent to $64.4 billion, according to today's release. For all of 2005, exports jumped 28 percent to $762 billion while imports gained 18 percent to $660 billion.
Foreign investors poured $213 billion over the last four years into building factories in China to take advantage of low labor costs and falling trade tariffs. Overseas shipments have doubled in the same period, leading the U.S. and Europe to step up calls for a more freely traded currency.
Not Enough
The People's Bank of China's decision to revalue the yuan by 2.1 percent in July and let it fluctuate against a basket of currencies has failed to satisfy U.S. lawmakers. Senator Charles Schumer and U.S. Representative Phil English have both introduced legislation to impose tariffs on Chinese imports unless the yuan rises further.
China's exports have soared from $267 billion in 2001. That's three times as fast as growth in global trade, according to Morgan Stanley economist Andy Xie. The increase equals the value of Japan's 2005 overseas sales, Xie said.
The gains have put China on track to overtake Germany as the world's second-largest exporter. In the first 11 months of 2005, China's exports amounted to about three-quarters of Germany's, measured in dollars. In 2001, China's exports were less than half of Germany's, based on the average exchange rate between the dollar and the euro for that year.
Shipping Companies
Shipping companies and port operators are continuing to invest in China, betting that the trade boom will continue.
A.P. Moeller-Maersk A/S, Hutchison Whampoa Ltd. and three other companies said on Dec. 19 they are investing in the second phase of Shanghai's $16 billion Yangshan port, which is on track to be the world's busiest harbor by 2010. The expansion will double the city's cargo handling capacity by the end of the decade.
``We expect trade to grow at a high rate and probably close to what we've experienced in recent years, Tommy Thomsen, a partner in A.P. Moeller and head of its container business, said in a telephone interview on Dec. 19. ``Shanghai is positioned to become the world's largest port within three to four years.
China's exports have surged by an average of more than 30 percent over the past three years amid an investment boom triggered by the nation's entry into the World Trade Organization in December 2001. Companies supported by foreign investment accounted for almost 90 percent of technology exports in the first 10 months of the year and for more than half of total overseas shipments, according to commerce ministry data.
Economists including Paul Cavey forecast that export growth will cool to about 20 percent this year as the expansion in new production capacity tails off.
``Export growth has been driven by information technology products which has been a function of Taiwanese companies moving to the mainland, said Cavey, China economist at Macquarie Securities in Hong Kong. ``That structural outbuilding of Chinese capacity is now coming to an end.
http://www.bloomberg.com/apps/news?pid=10000087&sid=aNe24hieOCz0&refer=top_world_news
