China spent $195bn to maintain currency peg

gulf daily ^

[maui_hawaii]

BEIJING: China's central bank spent 1.61 trillion yuan ($195 billion) buying foreign currency last year to maintain the yuan's peg with the dollar, a rise of 40 per cent over 2003. The People's Bank of China also drained 669bn yuan from the banking system via open market operations last year, more than double the 282 billion yuan used in 2003, Xinhua news agency said citing a central bank report.

China keeps its currency pegged to the US unit in a very narrow trading bank of about 8.28 yuan, a level which trading partners, especially the United States, say gives Chinese exports an unfair advantage.

[TheForceOfOne]

China's monetary situation is a house of cards, once it is adjusted to fair market value without the smoke and mirrors it will collapse.

[DM1]

help me out here
does this mean that they are struggling to keep pace with our currency?

[maui_hawaii]

Not exactly.

[GSlob]

So, they spent (i.e. paid)190+B. Somebody has to be on receiving end of that money, and [supposedly] to benefit from their massive effort. Soros could be suspected (it's his game, after all). But if not him, who?

[oceanview]

this article explains it a little more:

http://www.bloomberg.com/apps/news?pid=10000101&sid=a_bWM903jYww&refer=japan

"The central bank buys dollars to maintain the yuan's fixed link, creating more yuan and undermining government attempts to cool the economy by imposing lending restrictions on banks. China's economic growth accelerated to an eight-year high of 9.5 percent last year."

basicallly, they are drowning in liquidity.

it also shows the continued int'l pressure to get them to drop the peg, its the essential move to stop the bleeding with the US trade deficit.

more explanations on how this works here:

http://answers.google.com/answers/threadview?id=433459

[XBob]

they playing the old manopoly game, and are just trying to stave off the inevitable until they drive the major world manufacturers out of business, and then they can raise their value and take over the whole world markets.

[maui_hawaii]

Thanks!

[Orange1998]

Does google have a paid answer researcher or some auto bot. Quite impressive!

Easterangel-ga

Google Answers Researcher

[Pylot]

The widely held belief is that China pegs to the dollar and trades at a discount to the dollar.

The truth is that TheForceOfOne has it right. If China's banking system were ever exposed to the light of international scrutinty it would be found that well over half of their bank loans are non performing. The Chinese powers that be have stolen all the money they borrowed and they never intend to pay it back.

Given the countries growth they could, in theory, grow their way out of this problem. But the greed of those in power is not going to let this happen.

So they will continue to play coy, employ slave labor, and steal the resulting money that they borrow or make.

What I have said is at odds with the MSM view.

I think India will eventually outpace China and that India will do so on a sustained basis for a long time. We will see.

[Southack]

"BEIJING: China's central bank spent 1.61 trillion yuan ($195 billion) buying foreign currency last year to maintain the yuan's peg with the dollar, a rise of 40 per cent over 2003."

China's trade surplus with the U.S. was a mere $110 Billion in 2004. To get that surplus, it cost their central bank $195 Billion in foreign currencies that they used to buy up Dollars.

By purchasing enormous amounts of Dollars on the open market, China is able to prop up the value of our currency...that makes Chinese exports to the U.S. appear cheap to the U.S. consumer.

And by making their exports to the U.S. appear cheap, they are able to create an artificial demand for their goods.

In the short term, this creates enormous amounts of new jobs and factories in China...but the cost to their economy is backloaded.

As this article for this thread states, China paid $195 Billion on the open market for the priviledge of enjoying a $110 Billion trade surplus with the U.S.

To add further economic insult to this self-inflicted injury, China's Dollar-propping strategy makes Chinese imports of oil and iron more expensive.

To make a long story short(er), the Chinese Yuan-Dollar peg is clearly going to be broken, and soon.

[1rudeboy]

Is that theory yours, or did you get it from a Bond film?

[maui_hawaii]

bump

[maui_hawaii]

And Wal Mart will feel the pinch too.

Its kind of like a football team who created everything around one player.

[maui_hawaii]

Banks.

Chinese currency is not openly traded so Soros can't do jack.

The RMB is still a non-deliverable currency.

Japanese banks as well as Hong Kong banks got most of this action.

[Centurion2000]

With the figres thrown out (110 billion for trade deficit) and 195 spent to maintain the peg; seems that 85 billion that cannot be spent on new weapons. Nice strategy.

[Dog Gone]

That's good news and bad news. Imported goods from China suddenly become far more expensive to American consumers while causing a severe slowdown in the Chinese economy. There are obvious significant harmful effects in both countries.

The good news is that artificial currency pegs distort the market, and only when they are removed can the market function in a healthy manner over the long run.

The truth is that both the US and China have benefitted by their actions in the short run. But the piper must be paid.

[oceanview]

I hope so. Because in the meantime, US companies are pouring capital investment into china to take advantage of this artificial environment - a good deal of which would otherwise be invested here at home to create jobs and our tax base.

[oceanview]

a 40% hit on the yuan makes a $10 shirt cost $14. A $40 DVD player $56. how much of that stuff do you really need to buy? I don't know about you, but most of my monthly budget goes to housing, energy, health care, food, insurance, taxes, transportation, services (cable, phone, cellular).

[maui_hawaii]

Paid indeed.