China forex reserves world’s biggest, report says

Financial Times ^ | March 28 2006 | Richard McGregor

[buglemanster]

China has surpassed Japan to become the world’s largest holder of foreign exchange reserves, according to official media reports, but Beijing says the build-up will have no impact on its “gradualist” approach to currency reform.

China’s reserves reached US$853.7bn at the end of February, compared with Japan’s US$850.1bn, the China Business News reported on Tuesday.

The disclosure of the surge in reserves coincided with the emergence of a lengthy defence of exchange rate policy by Zhou Xiaochuan, the governor of the People’s Bank of China, delivered last week in a speech to foreign business executives.

Mr Zhou rejected US pressure for a rapid appreciation of China’s currency to reduce the swelling bilateral trade deficit, saying it would make little difference unless Washington also made significant structural adjustments.

He estimated it would take two to three years for China to achieve a “basic balance in international trade”, but even then, the bi-lateral imbalance with the US might be sustained. “Local economists worry that, even when China has achieved a basic global balance, the US could still be running a high trade deficit – and the problem will not be on the Chinese side,” he said.

“While China has been trying to relieve the problems, complaints are heard that the US has been slow in taking concrete measures to reduce its twin deficits and improve its savings rate.”

However, Mr Zhou offered to co-operate with the US on the issue, saying that priority should be given to “orchestrated structural adjustments.” China de-pegged its currency, the renminbi, from the dollar last July and revalued it by 2.1 per cent, but since then has only allowed it to rise by about another 1 per cent.

Mr Zhou said that the government was confident of allowing “market forces” to play a greater role in setting the exchange rate because of how well Chinese companies had coped with the new regime.

But China’s huge employment pressures and fragile financial system meant that any changes would still have to be rolled out in a “gradualist …and controllable manner.”

The continued rapid build-up of foreign exchange reserves this year suggests that speculative inflows, although they have abated somewhat, are still strong.

The increase in the first two months of this year of about US$35bn is partially accounted for by the trade surplus of US$12bn and another US$5bn-plus in foreign investment, with the remainder largely speculative inflows.

Mr Zhou said in his speech that high levels of foreign reserves in Asia were driven by the scarring experience of the Asian financial crisis in the late 1990s, and by different investment and savings regimes.

He said China’s reform to its currency would take some time to have any impact on the current account balance and direct investment, but that in any case, “if measured by per capita level, China’s foreign reserves are not high.”

The central bank declined to comment on the newspaper reports about the new level of reserves.

Carlos Gutierrez, the US commerce secretary, on Tuesday met China’s commerce minister Bo Xilai and premier Wen Jiabao to press for better access to Chinese markets for US companies.

[Toddsterpatriot]

he will always be a critic

Yes, when people post incorrect info and provide no source to back them up, I'm a critic.

he just can never deliver the goods.

LOL!

He will keep asking you over and over for more proof, so that he never has to do any research himself.

It's cute when you back up posters with no sources. It must be because you identify with them.

[Paul Ross]

.... but Beijing says the build-up will have no impact on its “gradualist” approach to currency reform.

Translation:
"The CCP change? Not in your life-time round-eyes!!!

Picture the following Mental Balloon text over head of the Beijing apparatchik making these weasely announcements to the Western Press Corps:

"Ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha, ha!
Stupid, short-sighted, weak-kneed, Corrupt, and hopelessly venal Westerners. We of the Communist Party are triumphing...and will so OWN you. We will soon put an end to your hopeless 'experiment' in republican (small R) self-rule.
And you won't even know what hit you when we take over."

[Paul Ross]

"While China has been trying to relieve the problems, complaints are heard that the US has been slow in taking concrete measures to reduce its twin deficits and improve its savings rate.”

Seems to me a nice fat tariff on China's exports would answer the "twin deficits" complaints of the Chinese rather nicely.

[buglemanster]

Maybe that's why 60% of all China's exports to the US are produced by firms owned by foreign companies, many of them American. As a matter of fact, foreign-funded enterprises (FFEs) account for about 55 percent of China's total exports.

This is misleading. Companies from Hong Kong and Taiwan are also considered as foreign-funded enterprises. The bulk of the FFE comes from HK and Taiwan, not from America.


Joint Stock Ventures have been miserable failures.

No. Many have been quite successful, see the VW-SAIC joint venture.

[Mase]

Companies from Hong Kong and Taiwan are also considered as foreign-funded enterprises. The bulk of the FFE comes from HK and Taiwan, not from America.

I never said the bulk comes from American companies but I did say that many companies exporting from China to here are American. I'm unsure about Hong Kong, but Taiwan is most certainly included in the total FFE numbers that account for 55% of China's exports.

There may be a few bright spots in their joint stock ventures but the SOE's have been disasters and most joint stock ventures have been less than successful. Better?

[RightWhale]

What do they intend to buy with all that e-money?

[Paul Ross]

Cautions regarding use of the data.

Country Attribution.
Users should be aware that the country attribution of foreign holdings of U.S. securities, including U.S. Treasury securities, is imperfect for two main reasons.

[Custodial Bias]
The first reason is that some foreign owners entrust the safekeeping of their securities to institutions that are neither in the United States nor in the owner’s country of residence. For example, a German investor may buy a U.S. security and place it in the custody of a Swiss bank. In the periodic surveys of holdings of long-term securities, such a holding typically is recorded vis-à-vis Switzerland rather than Germany. This “custodial bias” contributes to the large recorded holdings in major financial centers including Belgium, the Caribbean banking centers, Luxembourg, Switzerland, and the United Kingdom.

[Non-adjusted for Cross border transactions].
In addition, the procedure of adding net transactions to the original survey positions for long-term marketable securities can generate further significant geographic distortions over time. This is because cross-border transactions take place disproportionately in major international financial centers, and net purchases in those areas do not necessarily reflect acquisitions by investors in those areas. To illustrate how significant those distortions may be, the Major Foreign Holders tables provide two sets of estimates for each survey date: one set reflects holdings as of the most recent survey, and the other set is derived from the previous survey with positions estimated forward using transactions data. For example, the June 2004 survey estimate of Treasury securities held by residents of the United Kingdom is $59.5 billion. The estimate derived from the June 2003 survey by adding the foreign net purchases over the 12-month period until June 2004 is $119.3 billion.

Gee, Todd, only off by 50%. What do you think is happening with a Chinese net trade surplus of $202 directly with the U.S.?

Poor, poor Todd. His precious official statistics. Not worth the paper that they are printed on.

[buglemanster]

Hong Kong is a separate economic entity and has independent customs from the rest of China. Many state-owned Chinese businesses set up subsidaries in Hong Kong, and that's what I meant by saying that it's misleading to say FFE accounts for 55% of Chinese exports. Because "foreign" data includes HK, they are inflated.

[buglemanster]

oil fields and loans/aid to third world nations.

[Antoninus]

Holding all that foreign currency really has helped the Japanese economy, eh?

[Antoninus]

If they ever stop buying, our interest rates will go through the roof.

Won't be such a bad thing for those of us who have a very low interest rate fixed mortgages or other debts...

[buglemanster]

Helped the Japanese come out of war devastation to become the second largest economy in the world within 3 decades.

[buglemanster]

Won't be such a bad thing for those of us who have a very low interest rate fixed mortgages or other debts...

Someone still loses.

[Toddsterpatriot]

What do you think is happening with a Chinese net trade surplus of $202 directly with the U.S.?

Their surplus is $202?

Poor, poor Todd. His precious official statistics. Not worth the paper that they are printed on.

As compared to your statistics? If you say so.

[Paul Ross]

What do they intend to buy with all that e-money?

Our heritage, our posterity and DOMINION.

Current obligations net U.S. foreign oblications, keep your eye on that big number at the very bottom (in millions):

	United States
	Table A:  Gross External Debt Position*:  September 30, 2005
				(Millions of U.S. Dollars)
	General Government
		Short-term
			Money market instruments			251,933
			Loans			0
			Trade credits			0
			Other debt liabilities
				Arrears		15
				Other		0
		Long-term
			Bonds and notes			1,845,169
			Loans			0
			Trade credits			0
			Other debt liabilities			17,471
	Monetary Authorities
		Short-term
			Money market instruments			0
			Loans			0
			Currency and deposits**			342,800
			Other debt liabilities
				Arrears		0
				Other		0
		Long-term
			Bonds and notes			0
			Loans			0
			Currency and deposits**			0
			Other debt liabilities			0
	Banks
		Short-term
			Money market instruments			65,432
			Loans			439,221
			Currency and deposits**			995,543
			Other debt liabilities
				Arrears		13
				Other		0
		Long-term
			Bonds and notes			199,768
			Loans			42,455
			Currency and deposits**			93,937
			Other debt liabilities			0
	Other Sectors
		Short-term
			Money market instruments			247,948
			Loans			1,398,091
			Currency and deposits**			31,321
			Trade credits			34,776
			Other debt liabilities
				Arrears		13,149
				Other		0
		Long-term
			Bonds and notes			2,523,697
			Loans			81,309
			Currency and deposits**			0
			Trade credits			1,540
			Other debt liabilities			0
	Direct investment:  Intercompany debt
		Debt liabilities to affiliated enterprises
			Arrears			0
			Other			224,571
		Debt liabilities to direct investors
			Arrears			0
			Other			469,855
	GROSS EXTERNAL DEBT *					9,320,014
*   All debt presented at face value.
** It is recommended that all currency and deposits be included in the
short-term category unless detailed information is available to make the
short-term/long-term attribution.

[LurkingSince'98]

toddo,

obviously either you have not read or do not understand post #47 by Paul Ross.

you prove the saying daily that " guessing is always easier than knowing".

Lurking'

[Paul Ross]

Their surplus is $202?

That should've been $202b. In the billions, Todd, which is understood by all in this context.

If you say so.

Heck its your own precious Treasury Dept. sources.

Example: Net foreign currency obligations of U.S....note the huge uncertainty disclosed therein...of $1.23 Trillion. There is an impressive liability hanging out there, and they don't want to say what we owe it for...or who:

	United States
	Table B: Gross External Debt Position:  September 30, 2005
	Currency Composition of Gross External Debt
	(Millions of U.S. Dollars)
	Foreign Currency
		Short-term		140,323
		Long-term		681,961
		Total		822,284
	Domestic Currency
		Short-term		3,211,021
		Long-term		4,056,208
		Total		7,267,229
	Unknown *			1,230,501
	Gross External Debt			9,320,014
	*  The currency composition is unknown for debt in Direct Investment,
	Other Debt Liabilities of the General Government, and a small
	portion of loans to the Other Sectors.

Gee, Todd, you don't suppose that the LIKELIEST suspect is the country with the most enormous trade surplus with us (largely based on its refusing to buy our manufactured products in trade...unless we surrender our 'dual use' military tech)...and its massive market interventions to tilt the playing field. Such a wonderful idea...the free market. Too bad we don't have one.

[Toddsterpatriot]

Maybe you can show us where in Paul's post did it say that China held $850 billion in US Treasuries. Thanks.

[headsonpikes]

I believe that this is all good news for many publicly-listed companies.

Instead of pissing and moaning, folks should fill their boots with some of the exceptional stocks which only get stronger as the dollar slowly weakens because of the profligacy of American governments and politicians.

http://www.golddrivers.com/Juniors/juniorpageytd.htm

Why suffer for the corruption of others?

[Toddsterpatriot]

Gee, Todd, you don't suppose that the LIKELIEST suspect is the country with the most enormous trade surplus with us

Gee, Paul, why don't you add up all the trade surpluses China has had with the US and let us know how many Treasuries they could have bought.

Heck its your own precious Treasury Dept. sources.

So your US Treasury statistics proves that my US Treasury statistics are "Not worth the paper that they are printed on"? That's funny.