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CHINA: Will RMB go up?

Updated Jan 1, 2006

As we have mentioned, the RMB would not be revaluated again for 2005.

But there is one great move, the huge adjustment of GDP and the approval for thirteen banks including Standard Chartered and HSBC to trading of RMB have indicated that something will be changed in 2006.

If we believe that this is another chance for Soros to get another lot of fortune, we need to follow closely what will be his move.

For the time being, we believe that the floating RMB would not be with a single move. Instead, it may take two to three stages.

Since the so called "basket of foreign currencies" has been operated without any pressure, this means that China has the trump cards in hand to handle this issue.

We may see the equivalent to 2 percent revaluation in the first quarter. Even if everything is fine, the following adjustment would not be more than 2% each time.



Updated Nov 7, 2005

When every heads of America went to Beijing, we might suppose that China needed to further revalue the RMB to offset such pressure.

Again, the reply is like we shall keep on the reconstruction of banking system and the money policy.

I remembered that in an interview of a HK television program, a foreign senior bank executive said 2% might mean nothing to most people, yet it was a lot of loss with the huge amount of US dollars reserve of China.

That is the difference of true wisdom and hypocrisy. Unfortunately, telling truth is not welcomed today. No wonder that there are so many fraud today. It is a demand and supply that with so many fools, there is a huge market for criminals with no need of a gun.



Updated Jul 21, 2005

A surprise for all is really happened. The RMB is revalued by about 2% according to the Central Bank of China.http://www.pbc.gov.cn/detail.asp?col=100&id=1552

The RMB is no longer pegged to US Dollars only, but a basket of foreign currencies. It is said that such change would be a better way to maintain the RMB without great fluctuation that would harm the economic and social stability.

It is certain a surprise to those who move huge amount of money in and out of Hong Kong etc. trying to gain on this predicted revaluation.

Will we see another revaluation soon? It is not likely this year.



Updated May 13, 2005

Another round of the RMB game is going on. Funds are moving in HK again for the bonanza.

It is certain that most believe the US government had asked China again to revalue the RMB. Same as before, China said that they were preparing.

Of course, there is no way to avoid some guys making profit when RMB would be revalued, possibly a few percent to the US Dollars. So that will not be the concern for China. The major reason is as said, China will not follow what others said. It is easy to understand if China will do once, as response to request there will be thousand requests thereafter.



Updated Mar. 23, 2005

In a game of chess, it is easy to forecast the winner. That is, the one who have the upper hand.

When China has been asked to revalue the RMB, the response is negative. Now, when most are silent, Chinese Premier Wen Jiabao said something was arranging and there would be a surprise for all.

What will surprise us? Is the time of revaluation or the scale?

It has been noted by China's central bank that China has spent US$195 billion to buying foreign currency in 2004 to keep the peg with the dollar. Of course, this is not something that vanished. It just means that China has kept a greater sum of US dollars only.

The end of the quota for textile this year starts with a tremendous jump for export to United States. Although it is too earlier to predict any substantial move to handle this domination, yet it is certain that China will try to play safely to avoid the conflict with competing countries. Will evaluation of RMB affect the textile export? Not likely, there are lots of factors.

We can be certain that the surprise will not be too soon, at least not weeks from now. The surprise may be a very low level of revaluation or a very high level. It depends on what we suppose. Raising the RMB by 5 to 6 percent against the US Dollar may be very high in China's viewpoint. It may be just 1 to 2 percent finally.

Let the RMB exchange rate floating will be the greatest surprise to all. But it is the most unlikely surprise to come.

As for the timing, I guess that it may be within the second half of this year.



Updated Feb. 23, 2005

Some one said that RMB has escaped the pressure in the latest G7 meeting because of luck.

Not at all, just understand why America did not continue to comment about RMB, then we would know that the case is much more complicated nowadays. As the name of RMB, money of the people, it is now concerning all people in the world. If RMB goes up, every one except the rich guys would suffer. Perhaps specialists are among the rich and famous and failed to understand that the poor population of the world need a stable RMB to survive.

Just listen to what Gordon Brown, British Chancellor of the Exchequer, recently said, "China and other nations must make efforts to liberalize their exchange rates but the process should be gradual to avoid unnecessary economic shocks..."

We are certain that the only factor for RMB to go up will be China's internal demand. What are going on now are just gestures.



Dec. 21, 2004

Several friends have asked me about the RMB. It is certain that this is the hot issue these days when local and foreign investors are piling up their RMB for the uprising in value.

No, I said. There is no reason for China to raise the value of RMB. For almost tens of years, no country including USA, Japan, Germany etc. had raised the value of currency voluntarily. Instead, whenever a currency has been pushed up by external means, that country would try the best to keep it down.

As usual, everything about China is rumor. A few years ago, some said that RMB would be devalued. I remembered that I faced the same question of would it be true. No, I said. It would be unwise when China had to import a lot of machinery and material for the economy at that time.

Certainly with the low interest rate, those investors would not give up any chance to gain a few percent. But, I believe that they will be disappointed once again.

Referring to the WTO, China has promised to change the banking system. There has been quite a lot of change going on for the past years. I cannot see that there would be a chance for foreign banks to affect the value of the RMB yet.

However, China has encouraged local enterprises to expand overseas. But huge increase of this type of development It would not be a matter of months or even years. Will the Lenovo-IBM deal lead to more acquisitions? It is not likely to have another one coming soon. Some see this as a merge; some see this as a joint venture; some even say that this is politically motivated. Although it may be great when China need to buy foreign establishment with a stronger RMB, yet it is not worth to risk for in this period or even in the future.

Soon, Chinese can carry 20,000 RMB out of the country from a few thousands. This is said to ease the demand for RMB in foreign countries. Will this a way to turn the supply and demand factor avoiding the upward pressure? Remember that the deposit of RMB in Hong Kong has reached 10 billions this year. If as said by the chief executive of the Hong Kong Monetary Authority, Joseph Yam, that other currencies might peg with the RMB, then it would be another good reason to have the RMB to remain stable.

It would be better to estimate when China will stop to loan for development and reconstruction than guessing when the RMB would go up. Before the time that China would start to repay, there may be a good time to raise the RMB.

F. H. Tong