China's Reserves Top Japan's as World's Largest

• boy in blues

  1 Apr 06, 23:33

  March 31 (Bloomberg) -- China overtook Japan as the world's largest holder of foreign-currency reserves last month, the latest evidence of China's rising influence as an international financial power.
  
  The Chinese government's currency assets excluding gold rose to $853.7 billion as of Feb. 28, surpassing Japan's $831.6 billion, according to Bloomberg News calculations using government data. China's reserves, which now account for 20.1 percent of the world's total of $4.3 trillion, climbed a third during the past year. Japan's reserves account for 19.5 percent of the total.
  
  A record trade surplus and a flood of foreign investment has pushed China's currency holdings higher, increasing pressure on the yuan to rise in value and prompting the government to encourage investment overseas and purchases of imports. The U.S., led by Treasury Secretary John Snow, is pressing China to let its currency move with market forces.
  
  ``One can think of the phrase `be careful what you wish for' if China revalues,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. A strengthening of China's currency could affect ``import prices, inflation pressures in the U.S., and could make the Fed's job more difficult,'' Sinche said.
  
  U.S. lawmakers are considering more than a dozen pieces of legislation that would place punitive tariffs on Chinese imports unless the yuan is allowed to strengthen. Lawmakers including Senator Charles Schumer, a New York Democrat, say China's undervalued currency hurts U.S. exports.
  
  Yuan's Gains
  
  Since the yuan, a unit of the renminbi, was revalued by 2.1 percent against the dollar on July 21, it has only gained about 1 percent. The yuan rose to the highest today since July's revaluation on speculation the market will have more influence on exchange rates after the foreign ministry yesterday said currency participants determine the value.
  
  The yuan rose as high as 8.0173 against the dollar and was 8.0175 at the 3:30 p.m. close in Shanghai from 8.0264 yesterday, taking gains on the week to 0.16 percent, according to data compiled by Bloomberg.
  
  Canada's central bank governor, David Dodge, said yesterday in Princeton, New Jersey, that China shouldn't be allowed to ``frustrate market forces'' by blocking movements in exchange rates.
  
  $1 Trillion
  
  Both China's government and central bank have said they will make the country's exchange rate system more flexible, while ruling out another revaluation. China's reserves may rise to $1 trillion by the end of this year, marking the first time any nation's reserves have reached that level, according to Stephen Green and Tai Hui, China economists for Standard Chartered Plc China economists.
  
  China's trade surplus tripled to $102 billion last year, helping to drive economic growth of 9.9 percent, the fastest among the world's major economies. Schumer and South Carolina Republican Senator Lindsey Graham, after visiting China last week, postponed a vote on their China sanctions bill to give the country more time to change its currency system.
  
  People's Bank of China Governor Zhou Xiaochuan said in a speech March 20 that adjusting the yuan's value won't reduce the trade surplus. He said China will need two to three years to achieve balanced trade by increasing domestic consumption.
  
  ``The Chinese government has started expanding domestic market demand, lowered deposit rates, liberalized markets, allowed for exchange-rate fluctuations as part of our policy of improving the balance of international payments,'' Zhou said. ``The U.S. side must lower its fiscal deficit and boost savings.''
  
  Direct Investment
  
  China's reserves of foreign currency, which economists say are between 70 percent and 80 percent in dollars, rose by an average $17 billion a month in 2004 and 2005. That was also fueled by about $120 billion of foreign direct investment and billions of dollars of capital inflows betting on a rising yuan.
  
  ``We have to be somewhat careful about a radical revaluation'' of China's currency, said Mickey Kantor, a former U.S. trade representative under President Bill Clinton and now a partner at the law firm of Mayer, Brown, Rowe & Maw LLP. ``It could lead to more non-performing loans, which could make the banking system weaker. This is something we do not want to do.''
  
  Kantor said U.S. should still be ``strong advocates'' for a revaluation of China's currency.
  
  Treasury Holdings
  
  China's holdings of foreign currency assets are now so large the country is shifting more of the added reserves into euros and yen to reduce its exposure to dollar-denominated assets.
  
  China has been investing its reserves in U.S. bonds and assets. China held $262.6 billion in U.S. government Treasury bonds at the end of January, making it the largest investor after Japan. China's purchases of Treasuries have helped hold down market interest rates in the world's largest economy.
  
  On March 5, Zhou said China won't reduce the size of its dollar holdings, though the central bank will ``adjust'' total reserves based on international market conditions.
  
  In a separate report, the International Monetary Fund said today central banks cut their U.S. dollar reserves for the fifth straight year in 2005 and also pared their holdings of the euro and yen.
  
  Central banks held 44.8 percent of their total foreign- exchange reserves in the U.S. currency at the end of the fourth quarter, compared with 46.8 percent in the same period of 2004, the Washington-based IMF said.
  
  As recently as 2001 the world's central banks held over half of their reserves in dollars. The new figures validate speculation among investors that central banks are reducing holdings of dollars in favor of other currencies.
• boy in blues

  3 Apr 06, 04:45

  China holds the aces in this currency wrangle.
  Last July, after sustained diplomatic pressure from Washington, the Chinese government allowed the yuan to rise by 2.1 per cent against the dollar. This revaluation of China's currency - from 8.3 to 8.1 against the greenback - marked the end of Beijing's decade-long dollar "peg".
  
  At the time, many US politicians rejoiced. After all, the yuan had been "manipulated", held down "artificially" to boost China's super-competitive exports even more.
  
  That was why, said Congressmen, cheap Chinese imports were "flooding" US markets. Such imports "threatened American jobs", while "causing" a trade deficit close to 7 per cent of gross domestic product.
  
  Now America is at it again. Last week US officials re-ignited the war of words with China, trying to secure a further increase in the yuan ahead of President Hu Jintao's visit to Washington later this month.
  
  China needs to "walk the walk" on currency revaluation, observed Timothy Adams, the US Treasury under-secretary. If not, warned commerce secretary Carlos Gutierrez, America could launch "protectionist retaliation" that would "devastate" China's economy.
  
  Such political posturing, ahead of this year's crucial mid-term elections, reflects the fact that "China fear" is a major issue for US voters. What it does not reflect is anything approaching economic reality.
  
  The yawning US trade deficit has very little to do with the yuan. It is true that America ran a $200bn (£115bn) deficit with China last year. But since 2001 China has accounted for less than a third of the rise in the country's trade imbalance.
  
  In any case, China's exports to the US have displaced those from elsewhere in Asia. So America's rising deficit with China has been largely offset by falling deficits with the likes of Taiwan and South Korea.
  
  And many of the goods exported by China - office equipment, shoes, toys - are no longer made in America. So if the US didn't import them from China, it would be buying them from elsewhere overseas.
  
  What's more, if Washington did slap tariffs on Chinese goods, that would only harm US commerce. The majority of China's exports are produced by non-Chinese companies - including American ones. Counter-measures from Beijing could hinder US companies' operations in China and stymie future investments too.
  
  The "cheap" yuan has actually helped America - providing a stream of low-priced goods for insatiable US consumers. By holding inflation in check, China's exports have helped keep US interest rates lower than they otherwise would have been.
  
  Back in July, US Treasury secretary John Snow said the ending of Beijing's dollar peg "provided room for significant currency movements over time". Western investment banks piled in, predicting that the yuan would rise by between 30 per cent and 40 per cent against the dollar by the end of 2005.
  
  Beijing would "continue to hold down the yuan, albeit at a marginally higher rate, for the foreseeable future" - which is, in fact, what happened. Since July, to the intense frustration of Washington, the currency has risen by only 1 per cent in dollar terms.
  
  That trend is likely to continue - despite US rhetoric. Beijing has incredibly good reasons to maintain what Zhou Xiaochuan, the governor of China's central bank (pictured), last week called a "gradualist" and "controlled" approach to currency reform. Any large yuan appreciation would erode China's huge competitive advantage.
  
  Beijing knows that rapid growth, dependent on a stellar export performance, is crucial to China's political stability. Chinese inflation is also very low - now down at 0.9 per cent. A higher yuan would reduce Chinese import prices, exposing the country to a damaging bout of Japanese-style deflation. Again, that could threaten social unrest - and so will be avoided by Beijing.
  
  Consider, also, China's massive foreign exchange reserves - now, at $854bn, the biggest in the world. With this war chest, Beijing is well capable of "sterilising" even significant capital inflows. So China can resist any market pressure to push its currency up.
  
  Whatever Washington says, Beijing is calling the shots in this Sino-US trade dispute. The yuan will rise further when China is good and ready - which won't be any time soon. US diplomats, and currency dealers worldwide, should remember that cardinal fact.
• alexkusu

  3 Apr 06, 05:26

  guess is china's time to shine
• dragg

  3 Apr 06, 08:19

  china has about 10 times more people than japan.
  
  china needs a lot more money for building their infrastructure.
  
  china has many more natural disaster.
  
  it will be a long time before they can really be richer than the japanese.
  
  
• qpicanto

  3 Apr 06, 19:18

  US is increasing viewing China as a challenge to their might.The Americans must be trying hard to maintain their position. Recent talks where US endorsed India nuclear development is one such effort. Engaging the Australians is another one.
  
  
• boy in blues

  4 Apr 06, 10:47

  EU Backs China's Gradual Yuan Moves, Splits With U.S. (Update3)
  April 3 (Bloomberg) -- The European Commission backed China's policy of switching to a more flexible exchange-rate system at its own pace, rebuffing U.S. calls for faster steps to boost the yuan, according to a confidential document.
  
  The commission, the European Union's Brussels-based economic watchdog, warned that sudden moves to strengthen the Chinese yuan as demanded by some U.S. officials could further weaken the dollar against the euro.
  
  ``China should introduce greater exchange-rate flexibility in a gradual manner,'' according to a document obtained by Bloomberg News. A gradual move would lessen the risk of the dollar, euro and Japanese yen ``overshooting'' on the markets.
  
  The U.S. is pushing for a more flexible exchange-rate system to boost American exports and erode the U.S. trade gap with China, which reached a record $201.6 billion in 2005. U.S. officials complain that China keeps the yuan, a denomination of the renminbi, artificially depressed so Chinese products are cheap in the marketplace.
  
  The yuan has appreciated 1 percent against the dollar since China on July 21 replaced a decade-long peg to the dollar with a basket of currencies and let its exchange rate rise 2.1 percent immediately.
  
  No. 1 Customer
  
  The U.S. is the biggest market for the 12 European countries using the euro. European exports of 184.8 billion euros ($223 billion) to the U.S. last year dwarfed exports to China of 43.5 billion euros. Europe's trade deficit with China, at 74.1 billion euros in 2005, was less than half the U.S. level.
  
  ``An abrupt de-pegging of the renminbi, and possibly other Asian currencies, from the dollar could give rise to a sudden reversal of Asian capital flows into the U.S., which might risk an excessive additional downward movement of the dollar against the euro,'' said the commission document, which was prepared for an April 6 meeting of European finance ministers in Vienna.
  
  Finance chiefs from Asian countries including China and Japan will meet the EU ministers on April 7 and 8.
  
  ``The Europeans are concerned that should China allow more appreciation in the yuan that we could see an acceleration of dollar weakness, and that could spill over into major markets, and we could see European currencies strengthening,'' said Sabrina Jacobs, a currency strategist at Dresdner Kleinwort Wasserstein in London.
  
  The euro bought $1.2063 at 3:15 p.m. Brussels time, compared with an average of $1.2453 last year.
  
  U.S. Pressure
  
  The U.S. raised the pressure on China last week, with Treasury Undersecretary for International Affairs Tim Adams saying the Chinese government has been ``far too cautious'' on currency policy and should switch to a more flexible system now.
  
  With congressional elections in November, the U.S. has taken the lead in calling for a currency revaluation in China, which has leapfrogged the U.K. to become the world's fourth- largest economy. Steps so far have ``not satisfied the demand of U.S. policy makers,'' said the commission document.
  
  U.S. Senators Charles Schumer and Lindsey Graham are calling for 27.5 percent tariffs on Chinese imports, though last week they delayed a vote on the proposal until September. Some U.S. analysts predict legislation punishing China for the undervalued currency will pass before the November election.
  
  ``There has been more aggressive rhetoric from the U.S., but rhetoric is not going to make the Chinese move faster,'' said Marios Maratheftis, a currency strategist in London at Standard Chartered Plc, a bank that makes about two-thirds of its profit in Asia. ``They're on the correct path with a gradual strengthening of the yuan. Gradual is the key word.''
  
  Currency Manipulation
  
  Separately, the U.S. Treasury is considering whether to brand China a currency manipulator for the first time in more than a decade. That ruling may be delayed until after Chinese President Hu Jintao's April 20 visit to Washington, Adams said last week.
  
  The yuan declined to 8.0199 against the dollar today in Shanghai, from 8.0172 on March 31, according to data Bloomberg compiled.
  
  European governments have sought to whittle away at China's trade advantages by imposing tariffs or filing complaints at the World Trade Organization. Last month the EU slapped duties on some Chinese leather shoes, following last year's decision to set limits on Chinese clothing imports.
  
  Pushed by French President Jacques Chirac, EU leaders last year considered dropping a ban on arms sales to China that was imposed after the 1989 Tiananmen Square crackdown against pro- democracy demonstrators. Pressure from the U.S. and a change in government in Germany led the EU to keep the ban in place.
  
  In a rare joint move, the U.S. and EU last month threatened to take China to the WTO for setting tariffs on car parts that raise costs for foreign auto factories in China.
  
  Forecasting Difficulties
  
  Looking at U.S.-European economic relations, the commission document said it is ``unclear'' whether the dollar will continue to recover or weaken against the euro this year. While interest rates and economic growth remain in the dollar's favor, the end of the phase of U.S. interest-rate increases could benefit the euro, the document said.
  
  Some Asian governments, flush with dollars in their reserves, may let their currencies strengthen this year as an insurance policy against future crises, said the document, prepared by the commission's economics department and dated March 17.
  
  Also weighing on the currency markets is the risk of a widening U.S. current-account deficit along with increasing surpluses in Asia, the document said. The result may be a ``disorderly'' realignment of the world's major currencies.
  
  ``There remains the risk that, as imbalances continue to widen, the likelihood of a disorderly correction increases,'' the document said. ``Even if a disorderly correction is the less likely scenario, it may involve very large costs.''
  
• LittleTiger

  7 Apr 06, 06:05

  China.... lets work thru 10 trillion reserves!!!
• boy in blues

  8 Apr 06, 01:00

  Singapore's Midas Holdings has entered a joint venture (JV) with three Chinese firms to establish the country's biggest inner city train carriage manufacturer in Nanjing, capital of eastern Jiangsu Province.
  
  Midas holds a 32.5 percent stake in the newly-founded Nanjing Puzhen Rail Transport Co. Ltd., whose investment totals 407.63 million yuan (50.85 million U.S. dollars).
  
  Nanjing Puzhen Train Carriage Company holds more than 40 percent stake of the joint venture, while the rest is held by the Nanjing Underground Railway Co. Ltd. and Nanjing High-tech Development Corporation.
  
  The company is expected to churn out 500 carriages annually after its initial project is completed in two years.
  
  According to Qi Lu, a local government official, China is expected to build anywhere from 1,200 to 1,500 km of inner city railways in the next decade. The market demand for inner city train carriages will reach 9,000, worth approximately 100 billion yuan (some 12.35 billion U.S. dollars).
  
  Statistics from the State Development and Reform Commission show that the investment in the rail transport sector will amount to 200 billion yuan (about 25 billion U.S. dollars) during China's 11th Five-Year Program period (2006-2010).
  
  Earlier, the world's leading rail transport firms like Canadian train manufacturer Bombardier and German industrial mammoth Siemens have already entered China's huge market through forming joint ventures or tender bidding.
  
• boy in blues

  15 Apr 06, 15:02

  Originally posted by LittleTiger:

  China.... lets work thru 10 trillion reserves!!!

  Like everyone else who has not been there yet, I can't wait to visit China next month. I must admit, however, that I am not going free of preconceptions.
  
  I will explain why in a moment, but first -- in the extremely unlikely event that somebody out there has actually missed out on the gossip -- it is perhaps worth recounting why China is universally acknowledged as a brand-new megapower in the making.
  
  Some hard facts -- the Asian giant has already surpassed Japan as the holder of the largest foreign exchange reserves in the world; fact two -- nine out of every 10 tons of steel produced in the world is destined for Chinese construction sites.
  
  Yes, that's right: nine out of every ten. By the time you read this tomorrow the country will have sold close to a billion dollars more in goods and services to the United States than it will have bought from the latter, and, partly on that basis, will have lifted another 30,000 of its nationals from the grip of grinding poverty.
  
  Such is the sheer force and power of what has come to be known as the "Chinese model," which, however, should more appropriately be referred to as Xiaopinism, after Deng Xiaoping. This remarkable party overlord and career bureaucrat miraculously chanced on the insight that a Communist need not be frightened by capitalist money, provided the political system is kept free of the rough-and-tumble of business enterprise.
  
  Everything about the Chinese system inspires awe. Pundits do not remark often enough on the extraordinary genius of the country's unique political process that allows for a generally incident-free transfer of power to a new crop of leaders at regular intervals.
  
  While it regulates society with military precision, it still manages to confine the entire security apparatus in the hands of the civilian party. It is worth bearing in mind that the party itself consists of only 50 million members, and yet its hold on this nation of 1.4 billion is as close to absolute as can ever be said historically of the relationship between rulers and ruled.
  
  China confounds a stunned world with the longest running economic boom in history. Indeed, by 2010 she will be poised to meet half the world's manufacturing needs and probably bankroll most of the rest. Similar estimates say that by 2025 her GDP will have overtaken that of the United States by some $3,000,000,000,000 (no, that's not a typo), and by 2050 the Chinese economy may well have outstripped the combined production volume of the Western Hemisphere.
  
  And we must not forget the well-known competitive advantages of China. There is nothing really mysterious about them: a well-educated workforce, low wages, the attraction of becoming the world's largest consumer market, and a level of foreign direct investment that makes planning entry into the Chinese market less risky with each passing year.
• lovespecter

  18 Apr 06, 16:01

  the macroeconomy seems very good, but individual income in low.
  
  I heard a lot singaporean said they would like to go and work in China when graudate. I'd like to say if you are a investor, please go as the wage expense for u will be very cheap. if you are just a employee, think carefully when going to china. the wage for u will be not as high as that in singapore.
  you understand me?
  
• qpicanto

  18 Apr 06, 16:16

  Originally posted by lovespecter:

  the macroeconomy seems very good, but individual income in low.
  
  I heard a lot singaporean said they would like to go and work in China when graudate. I'd like to say if you are a investor, please go as the wage expense for u will be very cheap. if you are just a employee, think carefully when going to china. the wage for u will be not as high as that in singapore.
  you understand me?
  

  At national level the figures are always mind boggling.
  
• YI

  18 Apr 06, 16:18

  depends on occupation. china needs all the accountants she can lay her hands on and you can seriously forget about leisure.