← Autodidact Archive · Original Dissent · Sertorius
Thread ID: 19250 | Posts: 11 | Started: 2005-07-22
2005-07-22 13:03 | User Profile
washingtonpost.com China Ends Fixed-Rate Currency Administration Hails Policy Shift
By Peter S. Goodman Washington Post Foreign Service Friday, July 22, 2005; A01
SHANGHAI, July 21 -- China on Thursday took an important step forward in its move toward a market economy, announcing it would increase the value of its currency, the yuan, and abandon its decade-old fixed exchange rate to the U.S. dollar in favor of a link to a basket of world currencies.
The evening announcement on state television delivered China's first concrete move toward allowing the yuan -- also known as the renminbi -- to eventually float freely at the whim of global traders.
The move eased tensions between China and the United States on a key source of trade friction. The White House, pressured by manufacturers and vocal members of Congress, has lobbied China to raise the value of its currency, arguing that a low-priced yuan has unfairly kept Chinese goods artificially cheap.
The Chinese move was welcomed heartily by the Bush administration.
"They've put in place a mechanism that provides room for significant movement over time in the currency, and they've expressed a commitment to using market forces to let the currency move," Treasury Secretary John W. Snow said at a news conference. "I think today's developments are extremely positive."
China's most strenuous critics in the United States have demanded that Beijing increase the value of its currency by at least 10 percent. Sens. Charles E. Schumer (D-N.Y.) and Lindsey O. Graham (R-S.C.) have been pressing a bill that would impose across-the-board punitive tariffs of 27.5 percent against Chinese imports if China does not substantially raise the value of the yuan. Last month, the two senators delayed the vote after saying they had been assured by Snow and Federal Reserve Chairman Alan Greenspan that a Chinese revaluation was imminent.
The details of China's announced shift fell short of their demands. In a statement posted on its Web site, China's central bank said it would on Friday free the yuan to rise to 8.11 from its current 8.28 to the dollar -- an increase of about 2.1 percent. The bank also said it would allow the yuan to move within a trading range of 0.3 percent above or below the previous day's closing price, continuing its "managed float" policy.
The change garnered measured praise from Schumer: "It is smaller than we hoped," the senator said in a news conference. "But to paraphrase the Chinese philosophers, a trip of a thousand miles can well begin with the first baby step. And the fact that they have opened the door to future increases of 0.3 percent makes us feel and hope that this is not the last."
Analysts said Thursday's movement was probably only the beginning of a series of measures that will eventually allow the yuan to move in a broader trading band with other currencies and to float freely -- albeit not for several years.
"The new managed floating currency regime is just an interim system," said He Fan, an economist at the Chinese Academy of Social Sciences in Beijing. "There is a chance of a further widening of the band in the not-distant future, but it will go step by step."
Others suggested that Beijing was not likely to move again anytime soon. "I believe this revaluation will stay in place for the next 24 months," said Yu Nanping, an economist at East China Normal University in Shanghai.
In a sign of China's regional economic influence, Malaysia on Thursday followed with its own announcement that it, too, is allowing its currency, the ringgit, to float within a proscribed trading band. By contrast, Hong Kong announced it would retain its currency peg to the U.S. dollar.
China's decision to revalue the yuan drove the Japanese yen up against the U.S. dollar, and U.S. Treasury bonds fell. The USX China Index, which includes Chinese companies listed in the United States, rose by more than 3.5 percent.
Under the new system, the basket of currencies used to set the value of the yuan would be known to only Chinese authorities, though it is widely expected to include the euro and the Japanese yen.
Widening the band in which the yuan trades allows China to adjust to the foreign investment inflows that have been pouring into the country. Such investment, combined with China's swelling export earnings, has pushed the country's foreign exchange reserves beyond $600 billion, sowing worries about over-investment and inflation.
"China needs a flexible exchange rate to take off speculative pressures," said Jonathan Anderson, chief economist at UBS Investment Research in Hong Kong.
Anderson and other economists have for months predicted that the move would come in the summer, when markets are quieter. In the short term, however, the change could actually encourage speculation, as investors bet on the possibility of another bump up in the value of the yuan.
A desire to alleviate tensions with the United States also appears to have affected China's timing, analysts said. The currency change comes as Congress considers trade sanctions against China and just weeks ahead of a planned September trip to Washington by Chinese President Hu Jintao. It also lands as the state-owned Chinese energy company Cnooc Ltd. seeks to buy U.S.-based Unocal Corp. -- an effort that has stoked national security concerns in the United States.
But the most consistent irritant in the U.S.-China trade relationship has been the value of the yuan. Beijing has said repeatedly that it plans to float its currency eventually while insisting it would not cave to foreign pressures. China's leaders probably settled on the new policy weeks ago, analysts said, then timed the announcement for maximum political effect in Washington.
On Capitol Hill, China's alleged currency manipulation is often cited as a reason for China's $160 billion-plus trade surplus with the United States. But many economists disagree, noting that if Chinese-made T-shirts, furniture, toys and air conditioners increase in price as a result of a revalued yuan, U.S. workers would not gain any jobs. Rather, the business would shift to factories in other low-cost countries, such as Mexico and Thailand.
"This will have very little impact on the trade deficit," said Fred Hu, a managing director at Goldman Sachs in Hong Kong.
For China, the move toward a more flexible currency carries potential perils. Anything that could dampen export growth is sensitive at a time when China's coastal factories are creating jobs to offset those lost by the demise of bankrupt state-owned factories.
"The yuan appreciation will add to their difficulties and force them to lay off more workers," said Yu, the East China Normal University economist.
China has been loath to remove controls on the movement of money, cognizant that a surge of speculative investment into real estate followed by a hasty dash for the exits delivered Asia's last financial crisis. China avoided the devastation in large part because of its fixed currency and strict capital controls -- a policy that then drew words of gratitude from the United States.
"This a cautious move," said Zhong Wei, a finance expert at Beijing Normal University. "This is more like a political stance than real currency reform."
Staff writer Paul Blustein contributed from Washington. Special correspondents Eva Woo and Jason Cai also contributed to this report. é 2005 The Washington Post Company [url]http://www.washingtonpost.com/wp-dyn/content/article/2005/07/21/AR2005072100351_pf.html[/url]
2005-07-22 17:30 | User Profile
I knew that the dollar was in deep doodoo when Castro no longer wanted the US dollars and began to charge me 10% for sending money to my dad in Cuba, now Castro is charging me 20%, 8% for the Euro and none for Canadian.
If it was in their interest China would have left things as they were no matter what the US government wanted them to do but they decided that the dollar was to much of a risk.
And now they are getting rid of the fiat by buying valuable stuff with it.
GOT SILVER? :gunsmilie
2005-07-23 18:17 | User Profile
OFF TOPIC......OFF TOPIC.......OFF TOPIC
Some time ago I wrote that some time ago I saw some old maps of the Gaza that showed drawing of oil wells and now this came out.
Do you really think that the Zionists will allowed the Palestinians to get away with this? if anything the Jews will try to steal the gas and go after the oil by stealing more land.
Where there is smoke there is fire and where there is gas there is oil....
=====================xxxxxxxxxxxxxx===================
PA, Egypt do gas deal without Israel Andrea R. Mihailescu United Press International July 22, 2005
WASHINGTON, D.C. -- Israel is not expected to participate in the construction of a proposed pipeline transporting Palestinian liquid gas from a gas field on the Gaza coast to Al Arish in Egypt.
Following recent significant gas discoveries in areas of the Palestinian Authority by British Gas (BG), the Palestinian Authority (PA) and Egypt signed a government protocol in early July to arrange the sales of Palestinian gas to Egypt with exports to global markets to be made in the form of liquid natural gas.
Despite the good news for the Palestinians, some industry experts are skeptical of Israel's silence toward the news. Although it is a partner to the PA in a small gas field to the north of the Gaza Strip, Israel has in the past blocked Palestinian gas export and production agreements.
While the proposed pipeline project would export Palestinian liquid gas through Egypt, Israel has chosen to buy gas from Egypt rather than from the PA.
"Israel has shown that it is not interested in gas, so the preferred channel for use right now is the Egyptian-Palestinian channel," BG Israel country manager Eric Ludtke told reporters.
Palestinian energy minister Azzam Shawa said last week there is a possibility of a swap deal with Israel, involving the supply of Gaza gas in return for electricity.
On July 1, Israeli infrastructure minister Binyamin Ben Eliezer and Egyptian oil minister Sameh Fahmi signed a separate deal worth $2.5 billion to receive 1.1 billion cubic meters of gas from Egypt for the next 15 years. Under the agreement, a maritime pipeline will transport Egyptian gas to Israel's Mediterranean port of Ashkelon.
Although gas from Gaza is the most cost-effective alternative, Israeli Prime Minister Ariel Sharon is opposed to it for political reasons. Industry experts said Israel preferred gas from Egypt to the joint bid made by the PA and BG since any cash flow to the PA would end up bankrolling terrorist operations against Israel.
The gas deal could assist the struggling Palestinian economy as it seeks statehood. In addition to creating jobs in Gaza, the PA expects to earn $40 million to $45 million in taxes annually from the deal.
The Gaza Marine gas field has a reserve capacity of approximately 1.2 trillion cubic feet and investments for development require $400 million. Test drills five ago discovered gas production economically feasible.
The proposed Gaza-Al Arish pipeline would supply a minimum of 1.5 billion cubic yards annually for 50 years. If the project goes through, operations could begin in late 2009 or early 2010.
BG, which first struck gas in this area with its Gaza Marine-1 well in August 1999, has signed a 25-year contract to explore for gas and set up a gas network in the PA. The company is the operator of the exploration license covering the entire marine area offshore the Gaza Strip; BG owns the drilling rights to the fields.
Following successful drilling, the PA approved an outline development plan for the Gaza Marine field area in 2002. BG owns a 90 percent stake in the license, which will be reduced to 60 percent after Consolidated Contractors Company and the Palestine Investment Fund exercise their options.
BG said it also plans to begin test drills in September at the Noa Darom field near the Israel-Gaza offshore border while looking to use the $120 million Yam Thetis pipeline to transport gas to the Palestinian power plant in Gaza, replacing the energy supplied by an Israeli electric company.
The field is relatively small with only 2.8 billion cubic meters of gas. Gas usage is projected to substantially slash power production costs in Gaza.
2005-07-24 01:32 | User Profile
Maybe the fixed yuan was costing China too much money. They have been operating at a lost for a decade, from what I've read. Or they have sufficiently destroyed Amerikan manufacturing (with much help from Bush and the neo-cons), and it's time to get real and throw the knockout punch.
2005-07-24 03:33 | User Profile
[QUOTE=CWRWinger]Maybe the fixed yuan was costing China too much money. They have been operating at a lost for a decade, from what I've read. Or they have sufficiently destroyed Amerikan manufacturing (with much help from Bush and the neo-cons), and it's time to get real and throw the knockout punch.[/QUOTE] Clinton started the sell out, the current gang certainly kept the ball rolling. So much for any difference in the two "parties." Bah.
2005-07-24 03:37 | User Profile
What a bunch of jackasses and morons our leadership is. They destroy our economy by putting us at the mercy of the Red Chinese and then alienate those same Red Chinese by making a semi-military alliance with India.
As Number One Son used to say to Charlie Chan: "What you mean by that pop?"
2005-07-24 13:02 | User Profile
This was a response to strong US pressure over the last few months for the Chinese to revalue the yuan. The US government believes that a stronger yuan will magically fix the obscene US trade deficit with China, by making Chinese goods more expensive in the US and American goods cheaper in China. Here's the problem. Although the cheap Chinese imports were decimating our manufacturing sector, they were at least anti-inflationary. If the prices of all the Chinese crap at Wal-mart increase, that could contribute to price-push inflation. Secondly, the Chinese won't suddenly start buying loads of American goods just because they have become a little cheaper. The Chinese are nationalists, both economically and politically, and they will pursue a trade policy based on what's good for China, not on what makes the faculty of the Chicago School economics department happy. One last thing -- although the Chinese did revalue their currency, they did not let it 'float' as the US wanted them to. Instead, they changed from pegging the yuan to the dollar to pegging the yuan to a basket of currencies. So, they revalued it, but not near as much as the US hoped. The Chinese have a long-term plan, and they are sticking to it. The US is bumbling along from quarter to quarter.
2005-07-24 14:51 | User Profile
I agree with Quantrill. I'd also add that we really don't make much of anything they care to have.
2005-07-24 15:09 | User Profile
The revaluation was only 2 percent, so it's no big deal quantitatively speaking.
The question is whether this is a sort of watershed event where the Chinese will let the Yuan float more freely. If so, then this is a very big deal.
We don't know what they're thinking, so it's anybody's guess.
My guess is that this is a sop to the stupid Roundeyes and that the Chinese will continue their virulently mercantilist policies for the foreseeable future.
2005-07-24 16:14 | User Profile
[QUOTE=Angeleyes]Clinton started the sell out, the current gang certainly kept the ball rolling. So much for any difference in the two "parties." Bah.[/QUOTE] Not that it matters, but I think Bushstein senior gave China "most favored nation status".
2005-08-01 22:03 | User Profile
[QUOTE=travis]Not that it matters, but I think Bushstein senior gave China "most favored nation status".[/QUOTE] Given that he was our first Ambassador to China, 1973 ish, after Chiang Kai Chek got tossed, that would come as no surprise to me.