CEOs in China re­duce sup­port for yuan with dol­lar con­cern

The Pak Banker - - Company& -

BEI­JING: Chi­nese ex­ec­u­tives are tem­per­ing sup­port for a stronger yuan as they cen­sure U.S. mon­e­tary eas­ing for weak­en­ing the dol­lar and fu­el­ing as­set bub­bles in emerg­ing-mar­ket economies.

Shen Wen­rong, chair­man of Jiangsu Sha­gang Group Co., the nation's biggest pri­vate steel­maker, said China should only al­low a "to­ken" ap­pre­ci­a­tion while the U.S. is "print­ing money to stoke in­fla­tion." Ma Weihua, chief ex­ec­u­tive of­fi­cer of China Mer­chants Bank Co., said the yuan shouldn't climb "too fast" and the Fed­eral Re­serve must show more re­straint af­ter an­nounc­ing plans to buy $600 bil­lion of Trea­suries. Xia Jingjiang, gen- eral man­ager at Top­show Out­door Prod­ucts Co., which makes base­ball caps with cor­po­rate lo­gos, said the govern­ment won't risk growth with more rapid cur­rency gains.

Calls to limit ap­pre­ci­a­tion from Chi­nese ex­ec­u­tives, who in March backed an end to a two-year dol­lar peg, re­flect con­cern the econ­omy's ex­pan­sion may slow as the cen­tral bank raises in­ter­est rates to cool the fastest in­fla­tion since 2008. Yuan for­ward con­tracts show traders are bet­ting the cur­rency will stall be­fore Chi­nese Pres­i­dent Hu Jin­tao's state visit to Washington next month and climb 2.1 per­cent in the com­ing year.

"We hope the yuan will get stronger but don't want the ap­pre­ci­a­tion pace to be too fast," Ma at China Mer­chants, the nation's sixth-largest lender by mar­ket value, said in a Dec. 17 in­ter­view in Bei­jing. "The U.S. isn't tak­ing re­spon­si­bil­ity. It called on China to ad­just its yuan pol­icy but the whole world is suf­fer­ing from its eas­ing mea­sures."

One-month non-de­liv­er­able for­wards traded at 6.6180 per dol­lar as of 11:41 a.m. in Hong Kong, sig­nal­ing lit­tle change from the spot rate of 6.6229, ac­cord­ing to data com­piled by Bloomberg. Twelve­month con­tracts are stronger at 6.4863. An­a­lysts pre­dict the yuan will ap­pre­ci­ate an­other 5.5 per­cent to 6.28 by the end of 2011, based on the me­dian of 21 es­ti­mates in a Bloomberg sur­vey.

China's cen­tral bank will al­low the cur­rency to rise as much as 4.5 per­cent in the com­ing year, said Ra­jeev De Mello, the head of Asian in­vest­ment in Singapore at Western As­set Man­age­ment Co. The yuan has climbed 3.1 per­cent since June 21, when the govern­ment ended a pol­icy of fix­ing the ex­change rate at about 6.83 per dol­lar to pro­tect ex­porters dur­ing the global fi­nan­cial cri­sis. Thirty U.S. sen­a­tors called for the yuan to "ap­pre­ci­ate mean­ing­fully" be­fore Hu's trip, in a let­ter on Dec. 6 to Chi­nese Vice Premier Wang Qis­han.

"The noises from the U.S. prob­a­bly made the Chi­nese ex­ec­u­tives worry China will ap­pre­ci­ate the cur­rency at a faster pace," said De Mello at Western As­set, which over­sees $469 bil­lion of funds. "A faster cur­rency ap­pre­ci­a­tion would be too much for the lo­cal econ­omy since there has al­ready been a lot of tight­en­ing poli­cies in place." Shen, from Zhangji­a­gang-based Jiangsu Sha­gang, said the govern­ment needs to bal­ance main­tain­ing com­pet­i­tive­ness of ex­ports and cut­ting raw-ma­te­rial pur­chas­ing costs. Iron ore im­ports climbed 26 per­cent last month to the sec­ond-high­est level of this year, ac­cord­ing to govern­ment data. "China shouldn't pace up ap­pre­ci­a­tion," said Shen. "As a big buyer of iron ore, it has some ben­e­fits. But the ben­e­fits are limited."

Xia at Yangzhou, Jiang­sub­ased Top­show said his com­pany raised prices of its hats by 3 per­cent to ac­count for the yuan in the sec­ond half.

"The yuan's ap­pre­ci­a­tion will be grad­ual," he said in a Dec. 22 in­ter­view. "The cen­tral govern­ment un­der­stands clearly what a strong yuan can do to China's econ­omy. I hope it won't take that risk."

Ex­ec­u­tives at com­pa­nies fo­cused on the Chi­nese mar­ket, in­clud­ing Bei­jing-based com­puter maker Len­ovo Group Ltd., Shang­hai-based China East­ern Air­lines Corp. and China Mer­chants Bank, said in March that a stronger cur­rency would lower im­port costs, boost con­sumer pur­chas­ing power and en­cour­age global trade us­ing the cur­rency.

Dol­lar pur­chases to weaken the ren­minbi have driven China's cur­rency re­serves to $2.65 tril­lion and flooded the fi­nan­cial sys­tem with yuan. The trade sur­plus ex­ceeded $20 bil­lion for the fifth time in sixth months in Novem­ber as over­seas sales climbed 35 per­cent from a year ear­lier, the cus­toms bu­reaus said Dec. 10.

"Chi­nese com­pa­nies have to face the re­al­ity of a ris­ing yuan rate as the econ­omy grows fast and for­eign-ex­change re­serves in­crease," Zhang Wei, deputy di­rec­tor of China Cham­ber of In­ter­na­tional Com­merce, a govern­ment-run or­ga­ni­za­tion rep­re­sent­ing ex­porters and im­porters, told re­porters on Dec. 17 in Bei­jing. "They should also get fully pre­pared for ris­ing in­ter­na­tional pres­sure on China to let the yuan ap­pre­ci­ate."

The Peo­ple's Bank of China in­creased its bench­mark one-year de­posit rate by 25 ba­sis points, or 0.25 per­cent­age point, on Dec. 25 to 2.75 per­cent, be­low Novem­ber's in­fla­tion rate of 5.1 per­cent. The spread be­tween the sav­ings rate and its U.S. equiv­a­lent reached 197 ba­sis points this week, the most since at least 1996, boost­ing the al­lure of hold­ing yuan as­sets. -Bloomberg

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