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Subject: The Chinese economy begins its fall
Nanheyangrouchuan    8/26/2008 11:12:13 AM
"" Beijing swells dollar reserves through stealth Last Updated: 12:31am BST 26/08/2008 Have your say Read comments Rule changes for commercial banks are acting as cover for exchange rate intervention, writes Ambrose Evans-Pritchard China has resorted to stealth intervention in the currency markets to amass US dollars, using indirect means to hold down the yuan and ease the pain for its struggling exporters as the global slowdown engulfs the economy. A study by HSBC's currency team in Asia has concluded that China's central bank is in effect forcing commercial banks to build up large dollar reserves, using them as arms-length proxies in a renewed campaign of exchange rate intervention. advertisement Click here for more info! Beijing has raised the reserve requirement for banks five times since March, quickening the pace with two half-point rises in late June. This is having major spill-over effects into the currency markets because banks in China have been required over the last year to hold extra reserves in dollars rather than yuan. The latest moves have lifted the mandatory deposit from 15pc to 17.5pc of total lending since March. "China has used the pretext of reserve requirement hikes to help slow yuan appreciation. We estimate that the PBOC [central bank] intervened by about $49.6bn in June," said Daniel Hui, the bank's Asia strategist. Beijing has also slashed the amount of foreign debt banks operating in China can hold. The effect is to oblige the banks to become net buyers of dollars, halting the flow of foreign "hot money". # More on currencies # More on economics # More Ambrose Evans-Pritchard Given the sheer scale of China's foreign reserves - now $1,800bn (£970bn) - any shift in its exchange policy now ripples around the globe. The covert buying may help to explain at least part of the explosive dollar rebound over recent weeks. There is little doubt that the key driver behind the wild currency ructions this summer has been the blizzard of dire data from Britain, Europe, Japan and Australasia. The mounting danger of a full-fledged recession across the club of rich OECD nations appears to have caught the markets off guard. The closely watched Dollar Index reached an all-time low in March. It crept up gradually in the early summer before smashing through resistance in July. The world's currency system is swivelling on its axis. Central banks in Asia and Europe have stopped raising rates, and some have begun to cut aggressively. The Federal Reserve is no longer nakedly exposed. Indeed, investors are already starting to look ahead to the next round of Fed tightening. The 18pc slide in oil prices from a peak of $147 a barrel in July has added juice to the dollar rally. Russia and the Middle East petro-powers tend to recycle a high proportion of their vast earnings from oil into the eurozone, either by purchasing European bonds or expensive imports. A Bundesbank study found 40 cents of every dollar spent by eurozone countries on oil imports comes back again one way or another. The figure for the US is just 10 cents. This trade bias has given oil a new character as a sort of anti-dollar driving the currency markets. Even so, the China effect is a key ingredient in the dollar comeback. Beijing's Politburo is clearly disturbed by the sudden downward turn in the economy as export markets freeze, and surging wage inflation in the country's manufacturing hubs eats away at profit margins. "They are now more worried about growth than overheating, and you are seeing that play out in the currency markets. There has been a remarkable change of view," said Simon Derrick, exchange rate chief at the Bank of New York Mellon. China's PMI purchasing managers index fell below 50 for the first time in July, signalling an outright contraction in manufacturing output. Hong Kong's economy contracted 1.4pc in the second quarter. The Politburo has rushed through special rebates for textile producers now caught in a ferocious downturn. Much of the clothing, footwear and furniture industry has been hit, leading to mass plant closures in the Pearl River Delta. "During the first half of this year, about 67,000 small and medium-sized companies went bankrupt throughout China, leaving more than 20m people out of work," said the National Development and Reform Commission. "Bankruptcies of textile and spinning companies have numbered more than 10,000. Two thirds are on the brink of bankruptcy." Last week's rebound on the Shanghai stock market stalled on fading hopes of a fiscal stimulus package. "It is unrealistic to expect the government to rescue the market," said Li Ka-shing, chairman of Hutchison. "Speculators should be very cautious now. The worst is not over in the global credit crisis." Lehman Brothers warns of a risk that a housing slump and the 55pc equity crash sinc
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Zhang Fei       8/26/2008 4:38:41 PM
Jeroen: Can somebody please explain me why it is that the Chinese people accept beeing underpaid in order to produce products that are exported to the USA who have to borrow money from the Chinese in order to pay for them???
Are they perhaps;
Brain dead?
Plain stupid?

This is the same strategy used in the past by every other East Asian country to industrialize. The alternative is to lose business to other countries with similar cost structures. Chinese workers in export industries are underpaid only with respect to Western workers. They are highly-paid in comparison to Chinese workers in industries that produce mainly for domestic markets. And they are too highly-paid in comparison to workers from Bangladesh, Cambodia, Indonesia, India, Pakistan and Vietnam. This is why Chinese plants are closing down left and right. Foreigners don't buy anything from China that is unique to China. What they do buy from China is vanilla items that can be assembled or manufactured anywhere. If Chinese prices are too high, foreigners will simply buy their stuff from some other country.
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Thomas    A rock and a hard place   9/6/2008 12:59:49 PM
The chinese economy is caught:
Yuan up against USD: Exports down. Currency reserves down in value.
Yuan down against USD: Imports up. Currency reserves up in value; but that will never be paid.
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Thomas    A rock and a hard place   9/6/2008 1:23:46 PM
If the american economy is in trouble - the chinese is a disaster.
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