Tuesday, February 01, 2005

yuan may probably not be revalued in the short term

On the way to the dinner after finishing my last story, the thought came out: Will yuan be revalued this year if many companies and organizations begin to invest overseas this year?

The two things seems unrelated at the first sight. But we can relate to both in some circumstance.

First, where will Ping An, or its probable adviser Alliance Capital invest its 1.75 billion US dollars? It may not a difficult question for the companies to answer the question, especially Alliance Capital, the global fund management company with different portfolios for different customers.

But now it seems that many fund managers are putting more and more money in mainland China and Hong Kong. According to an inverview conducted by unlinkable SCMP, the chief executive of the Standard Charted Bank said that half of the money flowing in China are "hot money", seeking higher profit than what they could get from other places.

Hong Kong is another place for U.S. fund managers to invest, according to one of my previous stories.

So it means that Ping An will probably invest part of its investment, in the yuan currency, back into China, under the suggestion of Alliance Capital, because the return is possibly higher than other places. Ping An 's money will surely experience two exchanges: First Ping An exchanges yuan for US dollars from Central Bank, then Ping An exchanges US dollars for yuan if the money invest back to China.

No one will lose in the process if yuan remains its value. But things will be different if yuan revalue in the future. If yuan is up by 0.01 per cent, it means that 17 million yuan will disappear in the reality only from the process of two exchanges. Of course, Ping An doesn't want to see it, nor did the other two insurers, China Life and PICC.

Also the National Social Security Fund (NSSF) 's 170 yuan will be prepared to invest outside China.

It is hard to say who will benefit if yuan is revalued, but it is easy to know that all the Chinese investers, who has already put their money on the overseas markets, will lose on the circumstance.


無塵工作室 said...

The US had put immense pressure on the central bank to revalue the RMB in the past year (Japan had been doing it since god knows when). I believe that RMB must not raise its value (at least not in the near future), but for a much simpler reason - huge inflation will follow (possibly ending up as stagflation) if any increase in value of the RMB. For a government who wants to sustain stable economic growth this is very much undesired. Also, I think that people (esp. Western Journalists) tend to exaggerate China's importance in the global economy, it's not even comparable to the USA or Japan yet.

Although China's foreign reserves are mostly US$ related assets, But I don't think USD will drop anymore this year, unless Bush does some silly things again.

As you've said, as long as the RMB stays at the same level, no one will lose, but raising the RMB makes everybody a loser, I strongly believe.

Funny thing is though, considering China is the 'workshop of the world', raising RMB's value will simply mean disaster to many companies all over the world, big and small...China's attractiveness to Western corporation is the fact that labour is cheap (of course this won't last for too long). At the moment, when China isn't yet ready for the next stage of economic advance, rushing to appreciate RMB's value will mean destruction and economic downfall. So what's the urgency in raising it?

Amy or koala said...

I think Hong Kong and other Asian countries will be the most happy ones if China raise yuan's value. A HK official said this morning that Hong Kong is facing two pressure, the first is from the rise of the interest rate in the States, and the other is from the macro-economy's control in China. So the revaluation of yuan is one of the ways to help Hong Kong's economy.
It seems Hong Kong financial players are afraid every day that the money will flow out the city.

無塵工作室 said...

Interest rate in the US...There are still alot of money in HK's banking system now, so in the short term this has little effect. But in the long term, I think that interest rate rise in HK was inevitable.

Thinking more and more, I agree with you, if China revalues the RMB, Hong Kong's tourism will probably benefit most from it, but this will hurt industries who have links with China as well. Having said that, there will a reversal of roles - Hong Kong's cheaper currency will play a positive role, and even possibly enhance it's role as a export port and finance centre with cheaper services...(it's all a big 'if' though, because HKD exchange rate may float as well)

As for "Macro-economic conditioning" in China, it started to change from policy-directed to market-directed, the rise in interest rate last year showed that, but the effect of this will be slow. By doing that, I think this effect will start die down in the future. The main problem is that this is all still very early to say...



Yahoo! finance (HK & US) news reported that US Senate proposed a policy (at G7 meeting this weekend) to step up the pressure on China to revalue the RMB, otherwise they will impose tax tariffs on imported goods from China.

This will probably lead to nowhere, as much expected, but also angers me because it shows that the USA still prefers to do very little to improve their economy, meanwhile trying to force others to do the dirty work for them. They are selfish, and have no regards for China and the fact that they are not ready for revalue yet, all they want is to do less work for themselves. Now, I'm starting to believe that the Bush administration not only have problems with their foreign policy, but economic ones as well.

Amy or koala said...

hehe, yes, but we are just too small potatos to challenge Bush and his bad movement:( I prey Chinese economists and officials will be clear about what they do next.