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]

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

That's a good idea. But what does that have to do with the list of Canadian penny stocks at your link?

[Paul Ross]

Note those out-year obligations. Soon we'll be talking real money!

United States
		Table C:  Debt-Service Payment Schedule for outstanding external debt as of September 30, 2005
				(Millions of U.S. Dollars)
			One year					Over one year		Over
			or less					to two years		two
			(Months)					(Months)		years
			--------------------------------------------------------------------					--------------------		---------
			Immediate 1/	0-3	4-6	7-9	10-12	13-18	19-24	2/
General Government
	Debt Securities
		Principal	33	243,664	146,924	66,106	89,644	176,570	190,776	1,183,400
		Interest	0	22,409	22,005	21,352	21,165	40,574	38,775	488,420
	Loans
		Principal	0	0	0	0	0	0	0	0
		Interest	0	0	0	0	0	0	0	0
	Trade credits
		Principal	0	0	0	0	0	0	0	0
		Interest	0	0	0	0	0	0	0	0
	Other debt liabilities
		Principal		not available
		Interest
Monetary Authorities
	Debt Securities
		Principal	0	0	0	0	0	0	0	0
		Interest	0	0	0	0	0	0	0	0
	Loans
		Principal	0	0	0	0	0	0	0	0
		Interest	0	0	0	0	0	0	0	0
	Currency and deposits
		Principal	342,800	0	0	0	0	0	0	0
		Interest	0	0	0	0	0	0	0	0
	Other debt liabilities
		Principal	0	0	0	0	0	0	0	0
		Interest	0	0	0	0	0	0	0	0
Banks
	Debt Securities
		Principal	602	58,825	13,866	12,645	14,288	16,713	9,720	138,554
		Interest	0	2,875	2,819	2,812	2,670	4,961	4,711	45,384
	Loans
		Principal	261,285	149,571	13,510	8,519	6,336	2,255	2,255	37,945
		Interest	0	3,316	5,013	4,945	4,832	9,602	9,602	90,915
	Currency and deposits
		Principal	324,302	630,603	35,529	22,543	17,942	14,432	14,431	29,698
		Interest	0	8,070	4,245	4,067	3,762	7,349	7,349	64,404
	Other debt liabilities
		Principal	0	0	0	0	0	0	0	0
		Interest	0	0	0	0	0	0	0	0
Other Sectors
	Debt Securities
		Principal	13,053	234,657	87,109	79,166	87,308	124,571	163,919	1,993,790
		Interest	0	36,633	35,873	35,265	34,266	65,471	61,839	971,870
	Loans
		Principal	502,006	415,740	18,093	4,691	1,062	1,447	1,447	16,310
		Interest	0	5,358	6,619	6,539	6,489	12,967	12,967	127,297
	Currency and deposits
		Principal	31,321	0	0	0	0	0	0	0
		Interest	0	0	298	298	298	595	595	5,951
	Trade credits 3/
		Principal	6,141	27,259	234	171	971	148	148	1,244
		Interest	0	526	132	131	124	239	239	2,193
	Other debt liabilities
		Principal	1,221	0	0	0	0	0	0	0
		Interest	0	0	0	0	0	0	0	0
Direct investment:  Intercompany lending
	Debt liabilities to affiliated enterprises
		Principal		not available
		Interest
	Debt liabilities to direct investors
		Principal		not available
		Interest
GROSS EXTERNAL DEBT PAYMENTS 4/ 5/
		Principal	1,482,764	1,760,319	315,265	193,841	217,551	336,136	382,696	3,400,941
		Interest	0	79,187	77,004	75,409	73,606	141,758	136,077	1,796,434
		Debt service is unknown for debt totalling:				1,230,501
1/  Immediately available on demand or immediately due.
2/  For Currency and deposits, includes interest for years 2 through 7 on the principal that is immediately due (column 1).
For debt securities and all other debt instruments, includes all scheduled principal and interest payments for all
remaining future years.
3/  Exclude non-bank financial corporations, which, by convention, do not issue trade credit.
4/  The total of all principal payments equals:					$8,089,513	million.
The total of all principal payments plus the unknown principal in the bottom row of this table equals
the Gross External Debt in table A, except for a negligible amount due to rounding.
External debt for which the scheduled principal and interest payments are unknown are Direct investment, Other debt
liabilities of General Government, and a small portion of loans to Other Sectors.
5/  It is assumed that the most recently available data on the interest rate composition of outstanding debt remain
unchanged throughout the projection period.

[headsonpikes]

Well, try this Amex list of today's action:

http://new.stockwatch.com/swnet/market/market_active_result.aspx?month=3&day=30&year=2006&exchange=X&sort=pcgain&trades=0&volume=10&dolvol=&minprice=0&maxprice=999999&wkhi=&wklo=&dayhi=&daylo=&result=100&name=y

[Toddsterpatriot]

Sorry, that's a members only link.

[pganini]

Actually they hold those currencies to lift up the valueof the RMB. The reason why the RMB even after it is allowed to trade 0.2% each day remained relatively stable is that China still buys a lot of foregin currencies, and Chinese themselves put their savings into forex. (In China, you can go to any bank and deposit RMB into any other currency you want. Taking it out though is problematic, you can only go from Forex to RMB @ $2000 USD per day).

No country can peg their currency on another country without underlying economics - China is able to keep theirs fixed because their domestic savings rate is high and their domestic savers like US dollars. Buying USD weakens the RMB, so it keeps RMB artificially low.

[Mase]

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

Lurking'

Isn't this the same guy who told us once that gold was definitely a store of value but then later admitted it was kind of a store of value and that gold could sometimes protect you from inflation? Now he's lecturing others about guessing and knowing? Too funny. LOL

[Paul Ross]

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.

Why don't you tell us? (Assuming you're not too busy...or lazy, or that we could trust you to accurately do such a sum). Any rate, relying on 'official numbers' will only take you so far.

You do know they have been running multiple books to deliberately understate their export imbalance, so they could wail and cry about being just a lil 'ol third world wannabe. Don't you?

Any rate, we know what the upper bounds have to be, right?

[Toddsterpatriot]

Now he's lecturing others about guessing and knowing?

Are you saying his little "buying a suit anecdote" wasn't proof of his point? LOL!

[Toddsterpatriot]

Why don't you tell us? (Assuming you're not too busy...or lazy, or that we could trust you to accurately do such a sum).

Sorry, you're the one who says they must have that extra $1.3 trillion and the Feds are keeping it a secret.

[Paul Ross]

Why suffer for the corruption of others?

We can try and optimize our individual situations as best we can, looking for some kind of life-boat for store-of-value...just holding your own against devaluation, say by investing in inelastic commodities...such as oil appears to be.

But under current tax law that would be taxed away as a capital gain...hence it's probably a losing effort. At least until we can put in honest Republicans who believe in fiscal and trade integrity. What could be looming is a "Dollar-Collapse Tsunami" that sweeps all Western nations before it, and hits without warning on our end...but will indeed be triggered by conscious design. I'm assuming a deliberate Chinese 'manuever' to start the economic dominoes falling...all the while pretending to be shocked and concerned...just like they are 'complaining' about our 'twin deficits'. It is an implicit threat even now, as they act to intimidate our President and Congress. Successfully so far, I might add. (Treasury is constantly begging them to buy some T-Bills. Remember the last round...when the Chinese clearly didn't respond right away? Pretty please with sugar on top. What do you suppose they were promised?)

[Mase]

"buying a suit anecdote"

That's the one. Right off the Kitco website, no doubt. He guessed they were right which is sure a lot easier than knowing if they are. Kind of like guessing that China has $850 billion in US currency reserves rather than knowing if they do.

[Toddsterpatriot]

That's the one. Right off the Kitco website, no doubt.

Watch out. If you question his assertions he'll accuse you of being a government plant. Like the government needs to hire someone to make him look silly. LOL!

[headsonpikes]

Sorry, that's a members only link.

My apologies.

As you might well imagine, many of the AMEX leaders today are of a similar nature to the Canadian juniors list.

[Jeff Head]

If it were just the money...that would be precisely and exactly right. But it's not. It's the factories and production capability that has been moved there.

[Paul Ross]

No country can peg their currency on another country without underlying economics

Ever note the "coincidental" near-parallel amounts between their foreign exchange manipulations at the Bank of China, and the China trade surplus with the U.S.? Maybe it isn't a coincidence.

I don't believe it is the lowly Chinese workers scraping up and hoarding U.S. dollars, as your surmise below implies:

- China is able to keep theirs fixed because their domestic savings rate is high and their domestic savers like US dollars.

Here, in a 2005 article is a clue as to WHO and WHAT is the real 'domestic saver' in this situation. Note the highlighted portion in this article that I emphasized for you:

China spends US$195b to maintain yuan peg
(Agencies) CHINA DAILY
Updated: 2005-03-02 15:42

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

A 100-yuan note is on display at an exhibition in Beijing in this undated file photo. China's central bank spent US%195 billion buying foreign currency last year to maintain the yuan's peg with the dollar, a rise of 40 percent over 2003. [AFP]

The People's Bank of China also drained 669 billion 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.

"The central bank faces comparatively large pressure in the management of money flow and currency control," it said.

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, claim gives Chinese exports an unfair advantage.

China has resisted foreign pressure to loosen the yuan peg but has promised that it will move over time towards a more flexible exchange rate regime.

Balloning trade surpluses and years of foreign investment have flooded the financial system with cash and market players say the central bank has been virtually the only buyer of surplus hard currency such as the dollar

As a result, China's foreign reserves in 2004 soared to a record US$609.9 billion from US$403.3 billion in 2003, with the increase equal to the total intervention amount.

Meanwhile, China's US$60 billion current account surplus, up US$25 billion from 2003, and US$61 billion of foreign direct investment (FDI), were additional large sources of foreign exchange, ING economist Tim Condon said in a note.

This still leaves US$74 billion dollars (614 billion yuan) of non-FDI capital flows, coincidentally roughly the same amount as the central bank drained from the system through its open market operations.

"This is the monetary management issue that we believe will motivate the authorities to reform their exchange rate regime by introducing greater two-way risk some time in the second quarter of 2005," Condon said.

In attempt to ease pressure on the currency, China will cut its growing balance of payments surplus by permitting more foreign currency to leave the country, state media reported earlier this week

[headsonpikes]

Hmmmmm...

I've got a choice - successfully persuade my fellow citizens to abjure government feebies and their political enablers to cease and desist their extravagance; or, focus my efforts on preserving and creating wealth despite them.

I'm going with the latter, for now.

[Travis McGee]

Don't worry, the Chinese love us, and will always lend us money to prop up the dollar.

I mean, we're Americans, and a life of luxury is our birthright.

The Chinese understand this, and will always support us.

[LurkingSince'98]

hey Mase,

give me one example of any currency or anything which has been used as a currency that has been able to buy or exchange for a tunic, cloak, coat or suit for the past 3000 years.

Anything? Even one thing?

While your at it, give me one example of anything currency, medium of exchange, etc. that is still in use after 3000 years.

And please answer the question directly.

Please give ONE example of what has been used and is still used.

Gold - Store of Value for three millennium.

Lurking'

[pganini]

Paul,

You do realize that there are over 300 million cellphone users in China now, and they represent the growing middle class there. Maybe you have never been at a bank in China but I can tell you that investors there can buy any foreign currency they want and people DO for security reasons.

Obviously economies that are export-oriented needs to have large amount of forex in order to facilitate the trade, but still, the general trend there is to buy USD and save into US treasuries, because frankly they think (and they're right) that USD is safer than RMB.

[Paul Ross]

...but still, the general trend there is to buy USD and save into US treasuries, because frankly they think (and they're right) that USD is safer than RMB.

There you go again.

Who do you think "they" are?

The China Daily article is the financial beat of China. They declared this:

"Balloning trade surpluses and years of foreign investment have flooded the financial system with cash and market players say the central bank has been virtually the only buyer of surplus hard currency such as the dollar.

So you disagree with their newspaper. Let's see some numbers on your "growing middle class" that disaggregate sthe government, the Party, the PLA, their affiliates, their state enterprises, their FDI partnerships, their front operations, etc, and all associated people in their 'businesses' from all whatever numbers you produce....then you might have some real numbers.

You claim existence of a growing Chinese "middle class." That middle class does not translate into an entrepreneurial investor class. First, except for the higher elites, their real income is too deficient...and how much of their money is exhausted on their phones and PCs? Second, how many cell phones users, or internet for that matter, among the CCP, princelings, and PLA affiliates likely have their 'positions' fund them? You think these devices are 'badges of progress' and an accurate proxy for net disposable income analogous to such assumed equations in the U.S.? I don't.

You are presumptively inferring that China has bigger middle class than ours. Get real. Theirs is hardly a middle class. Those subsidized expressions of 'wealth' are quite illusory.
First, they are a political, or politically-connected elite.
Second, many are necessitated due to the nonexistant or beyond-decrepit phone system.
Third, isn't it rather more-than-likely that the intellectual property of the Western Companies that designed all the technology...and imprudently manufactured these phones in China...is now seeing them ripped off so to the extent truly private individuals get them...they aren't paying what a Westerner has to pay.

Remember how GM had a plant cloned illegally by their Chinese "partners" all with the PRC/State assistance behind their backs of course. Surprise, surprise. Samsung and Motorola likely have gotten the same treatment.

For a more accurate comparison, and measure of a middle class, one should look at Taiwan, and what do you see there? Likely from your own source on the cell phone number:

In Taiwan, cell phones exceed people, as many carry more than one phone for personal or business use.

As for here in the U.S., the sheer numbers of 50% are not actually very representative due to demographics. There are good land lines here for one thing. Second, there is a degree of fashion in all this...and the U.S. has a raft of contrarians who don't give a hoot about image. Or they are cheap. Not poor necessarily. There are those who are simply too young or too old.

Here in Minnesota, The only people I know who don't have cell phones are old farts who simply eschew them, or kids who are too young. Everyone in the U.S. around the age of 12 though seems to have one. Kind of annoying around here how many of the boppers are text messaging all the time!

Nursing home residents and kindergartners don't need them.

So again I repeat about your points: So what!