SHANGHAI
China gives foreign banks more rein
Rules on branch openings, capital requirements eased


CHINA will permit foreign banks to open branches more quickly, as it prepares to open its financial industry to full foreign competition, its banking watchdog said.

Separately, the government has also issued new rules lowering the bar for enterprise groups to set up special finance companies to handle their funds, state media reported yesterday.

Foreign banks have long chafed under restrictive regulations that limit their participation in a market with US$1.3 trillion in savings they are keen to tap.

They will get their chance from late 2006, when China has agreed with the WTO to allow full foreign competition.

Tomorrow, HSBC Holdings, the world's third-largest bank by market value, will sign a deal to buy a 19.9 per cent stake in China's fifth-largest lender, Bank of Communications, worth a reported US$1.69 billion.

In new rules to take effect on Sept 1, the China Banking Regulatory Commission (CBRC) deleted a provision that orders foreign banks to wait for a year between the opening of each additional branch.

Minimum capital requirements for foreign banks to apply for conducting local currency yuan business for Chinese firms will be reduced by a quarter to 300 million yuan (S$62.4 million), from 400 million yuan. The new rules were published on its website (www.cbrc.gov.cn) late on Tuesday.

The capital requirement for banks seeking to offer such services to Chinese citizens will be cut to 500 million yuan from 600 million yuan, the commission said. The rules will replace regulations in place since February 2002.

'The new rules are in line with the changed conditions after China joined the World Trade Organisation' in late 2001, a CBRC spokesman said in a statement.

The regulations retain the bulk of previous requirements, such as one that foreign banks must maintain a capital adequacy ratio of 8 per cent if they want to open branches in China. And they add a requirement that foreign banks operating in China must properly calculate their non-performing loans and put aside enough provisions in line with Chinese regulations.

In its WTO entry commitments, China will almost totally open up its banking sector, allowing foreign banks to freely conduct local yuan business by the end of 2006.

Beijing sets many restrictions on yuan banking business, including geographic limits. Foreign banks are granted more freedom to offer foreign currency services.

The government is preparing domestic banks to face the foreign competition. At the end of last year it injected US$45 billion into two of its Big Four state banks, the Bank of China and China Construction Bank, both of which plan to list within two years.

Other foreign banks eyeing the Chinese market include Standard Chartered, which has said it wants to buy a stake in a Chinese lender by the end of 2004.

On the liberalisation of rules for finance companies, the move will benefit big name firms such as computer maker Lenovo and handset and TV manufacturer TCL, which are planning to establish their own finance companies, the China Daily reported.

a soft landing.......

"The growth in fixed investment and bank lending slowed down significantly in April and May, boosting confidence that the State's measures are working and reducing the possibility of further tightening measures that some fear would lead to an abrupt economic slowdown. ".....China Daily

for more read this link...

China Daily

indeed it may be......

what most don't know..... China's oil consumption is in the
main in the transportation sector

the power generation sector is not oil and gas dependent...

get your news here in MarketChatter's links

Web Page - Link

an MC webbie info source....

there is better Credit control now....

....."Loan growth was down from high levels in the earlier months of the year and the latter half of last year, which had fuelled worries about the economy being overheated and triggered tightening measures in recent months. ".....China Daily

CREDIT UNDER BETTER CONTROL - CHINA DAILY

an MC webbie info source links....

China's growth unlikely to slow down much: economists


But early braking that Beijing is doing now will ensure that current upturn will last longer, they say

(SINGAPORE) China's growth momentum is so great that even determined tightening steps are unlikely to induce much of a slowdown in an economy that has become a major driver of regional and global demand, analysts said yesterday.
Indeed, many take heart from the fact that China is putting its foot on the brakes much earlier than it did the last time the economy overheated a decade ago. The result, these optimists say, is that the current upturn will last much longer.
The slowdown that Beijing is trying to orchestrate should have little effect on the rest of the world, outgoing San Francisco Federal Reserve president Robert Parry said.

But countries that relied heavily on China for exports could suffer, Mr Parry said. 'I am not sure it (the slowing down of China's economy) will have that much of an effect on the world economy,' he told the Hawaii Society of Investment Professionals late on Thursday. 'My hope is that China can slow their economy down to a safer speed without an over-correction.'

Tim Condon at ING Financial Markets in Hong Kong said China's gross domestic product growth rate would have to drop three or four percentage points to hit Asia hard. China's economy expanded 9.1 per cent in 2003.

'Anything that produced that kind of an effect on top-line growth would be felt in the rest of the region, particularly in North Asia where you have capital goods producers benefiting from the boom in China. Will they do that? I remain sceptical that that kind of a hard landing is a reasonable central case,' Mr Condon said.
Still, fears of a hard landing are gripping markets after China stepped up efforts to regain control of growth in credit and investment.

Jim Walker, economist at CLSA in Hong Kong, said any increase in borrowing costs would have to be much larger than the mooted half-point rise to send shivers through the rest of Asia. China's minimum one-year lending rate is 5.31 per cent.
'If they raised it by 100 or 200 basis points, I don't think you'd see the tail flicking,' Mr Walker said. He said it would take a doubling of interest rates - which he ruled out - to change businessmen's bullish expectations. 'The profit numbers that are coming through now are very robust and incredibly supportive of continued investment.'

Asia has a vital stake in China's attempts to let the air out of the bubble in fixed-asset investment, which was 43 per cent higher in the first quarter than a year earlier.

Last year, exports to China from elsewhere in Asia grew about 40 per cent on average. Japan logged a 44 per cent increase. South Korea's exports to China jumped 48 per cent and Taiwan's more than doubled. The Philippines' overall exports would have fallen if it had not been for a 48 per cent rise in sales to China, according to Sin Beng Ong of JP Morgan Chase in Singapore.

'Of course, the same linkages could transmit any slowdown in China to the rest of Asia in 2004 and 2005. Korea, Hong Kong, Taiwan and the Philippines - where the Chinese market accounted for over 35 per cent of export growth last year - would likely be most affected,' Mr Ong said in a note to clients.

Given the urgency of Chinese Premier Wen Jiabao's vow to take forceful measures to cool the economy, the only question is what form they will take.

Mr Walker at CLSA doubts that the People's Bank of China will increase interest rates because it is concerned that consumption would be hit. A more likely outcome, he said, is a tightening of prudential limits on lending to red-hot sectors.
Yiping Huang at Citigroup in Hong Kong said regulators could either widen the band for lending rates or remove the ceiling altogether. 'This would allow the banks to charge much higher interest rates for loans to risky businesses.'

Hong Liang with Goldman Sachs in Hong Kong expected measures such as these - along possibly with an increase of 50-100 basis points in banks' lending rate - to succeed in cooling investment demand and bring about a soft landing.

Goldman has increased its forecast of China's 2004 GDP growth to 9.7 per cent from 9.5 per cent but has lowered its projection for 2005 to 8.3 per cent from 9.2 per cent.

'The fact that policy adjustment has come early in the cycle this time has provided an important basis for extending the cycle duration,' Ms Liang said in a report.

In 1993, when China last embarked on a monetary tightening, inflation was around 15 per cent. Today it is 3 per cent. Private consumption rose 16.3 per cent in 1992 and 11.3 per cent in 1993, but has lagged GDP growth in recent years. This domestic demand contributed to a current account deficit in 1993 of 2 per cent of GDP. In 2003 China had a 3.5 per cent surplus. 'Hence, we believe that the need for draconian across-the-board tightening by the government is absent at present,' she said.

The rest of Asia will hope she is right. The World Bank estimates a 10 per cent drop in China's imports could cut growth in economies such as Korea and Taiwan by one percentage point.

But not everyone is sanguine. Andy Xie of Morgan Stanley in Hong Kong says directed credit quotas might be needed to bring about a soft landing. Even then, the odds of success are not high because politically connected businessmen have an incentive to borrow from banks to over-invest, he said.

No signs of overheating - Stiglitz


23/7/2004

Shanghai - China's is showing no signs of overheating, economist and 2002 Nobel price winner Joseph Stiglitz said at an executive training programme for media and finance professionals on Thursday in Shanghai. Trade deficit, inflation and tightness at the labour markets are three signs for overheating that have not a worrying level in China, Stiglitz said.

During his speech to local and foreign financial editors and reporters Stiglitz said that "Deflation has changed in the past year into a slight inflation, it should be monitored but there is no reason for worry�. Similarly, the labour market registered an offer increase, compared to the demand, which has not reached worryingly levels. Also the current trade deficit, from a previous trade surplus, does not have dangerous proportions. Stiglitz is confident that "China has the potential of consistent growth and needs to grow very fast to absorb its labour resources."

China is exploring new waters, the economist said, no other country had seen such a long period of economic growth at such a high level. The country has to envisage a strategy for environmentally sustainable development, Stiglitz added, that would attract the US, for example, to do more to make China more energy-efficient.

Stiglitz is known for his anti-globalization feeling and is debating during election times in the US that free market economies can not create enough new jobs; government intervention is necessary.

Stiglitz bacame a full time professor at Yale in 1970, and in 1979 he was awarded the John Bates Clark Award, given biennially by the American Economic Association to the economist under 40 who has made the most significant contribution to the field. He is now University Professor at Columbia University in New York. In 2001, he was awarded the Nobel Prize in economics.

"Pushing reform of the investment system is an important step in establishing and improving the socialist market economy"

Premier Wen Jiabao quoted by the China Securities Journal out of a cabinet circular on socialist market economy with free market characteristics: to cut government intervention to allow businesses to invest more freely.

Aug 11, 2004
China's industrial output growth slows for 5th month

But central bank says tight grip on credit needed to enable soft landing

GROWTH in China's industrial output slowed in the year through July for the fifth month in a row but the central bank said it would keep a tight grip on credit to help steer the economy to a soft landing.

Production had increased by 15.5 per cent in the period, compared with 16.2 per cent in the year to June, the State Statistical Bureau said yesterday. That was close to forecasts of a 15.9 per cent rise and well below peak growth of 23.2 per cent in the 12 months to February.

Economists expect the moderating trend to persist, slowing industrial growth to around 15 per cent as credit curbs and government orders to halt investment in overheated sectors continued to ripple through the world's seventh-largest economy.

'At the moment, all the signs point towards a nice, moderate slowdown, which will be good for the region,' said Tai Hui, an economist with Standard Chartered Bank in Hong Kong.

Some economists and officials have called on the authorities to start relaxing the raft of restrictions, saying they were driving smaller firms in particular out of business. But the central bank said it was too soon to declare victory.

'The current macrocontrol measures are in a critical phase, and have achieved initial results, but the foundation is still not solid,' the People's Bank of China said.

Its task was to do a good job of implementing those monetary policies already in place and ensuring reasonable control of credit growth, the bank said in its quarterly monetary report.

Tightening measures such as requiring banks to hold more cash in reserve instead of lending it out have succeeded in bringing the pace of money supply growth below the central bank's target.

The bank said it expected the economy, which grew by a slower-than-expected 9.6 per cent in the year through the second quarter, would ease further in the third quarter. It forecast inflation, now at a seven-year high, would moderate by the end of the year.

Sceptics periodically express doubts about the quality of China's data. But slowing money growth figures from the central bank - deemed to be the most accurate data set - tell the same story of a cooling economy as the GDP and output figures.

'GDP and industrial production do seem to follow relatively closely in terms of the trend, so in that regard we do think it is a relatively reliable data series,' Grace Ng of JP Morgan in Hong Kong said of yesterday's report.

Smoothing out seasonal variations, JP Morgan estimates that output rose 0.8 per cent in July compared with June. It calculates production rose 1.0 per cent in June and fell 0.4 per cent in May, when the government cracked down on credit.

Despite the overall slowdown, mixed data from sectors where frenzied investment has worried policy makers help explain the bank's cautious stance.

Growth in output of aluminium slowed to 10.8 per cent in the 12 months to July from 36.8 per cent a month earlier.

Cement production growth declined to 11 per cent from 13.2 per cent, and automobiles to 5.4 per cent from 20.4 per cent.

But growth in output of steel rose to 18.5 per cent from 17.3 per cent, though it remained well below a peak of 37.7 per cent in the year to February. The thrust of the central bank report was in line with comments at the weekend by Premier Wen Jiabao, who called for the macroeconomic control measures to be strengthened and improved.

But economists say China, which has accounted for more than a quarter of global growth in recent years, is already taking a more selective approach. It has urged banks not to curb lending so sharply that they drive healthy firms to the wall.

Yiping Huang, an economist with Citigroup in Hong Kong, said he expected further policy tweaking, especially to ensure firms had enough working capital to pay their day-to-day bills.

'But fine-tuning is always difficult so we think the path for the economy in the coming quarter will be a bit bumpy,' he said.

The risks ran in both directions, Mr Huang said.

Unless the authorities eased up, a credit crunch could bring the economy down to earth with a thud. Yet if they loosened the controls, firms might use working capital to finance a build-up of inventories.

Dong Tao of CSFB in Hong Kong acknowledged that the risk of a revival of massive investment had not totally disappeared, but he too said private firms were desperate for working capital.

China's Agriculture Ministry Denies Bird-Flu Found in Pigs

Aug. 23 (Bloomberg) -- China's Ministry of Agriculture denied media reports that a deadly strain of bird flu had been found in pigs for the first time.

The ministry tested 1.1 million poultry and pork samples after an outbreak of bird flu in China early this year and no pigs were found to have the H5N1 virus, the ministry said in a statement on its Web site.

Scientists discovered the H5N1 strain in pigs tested in 2003 and this year, Agence France-Presse reported Friday, citing China National Avian Influenza Reference Laboratory official Chen Hualan at forum on SARS and avian flu prevention in Beijing.

A chart Chen showed during a presentation indicated the virus had been found in several pig farms in China, the report said. Chen didn't provide more details, the report said. The virus had been found only in birds and poultry and its transmission to humans has been limited.

China last month reported its first case of bird flu in more than three months in the eastern province of Anhui. The outbreak has since been contained.

Worries persist of China hard landing
IMF board urges flexible yuan, staff wants rate hike
By Gregory Robb, CBS Marketwatch.com
Last Update: 6:13 PM ET Aug. 25, 2004
WASHINGTON (CBS.MW) -- Concern about a possible hard landing in the Chinese economy persist, according to the latest review on the country's economy released by the International Monetary Fund on Wednesday.

Despite some signs of moderation in the fast pace of investment and economic growth seen last year, a soft landing for the Chinese economy "is not yet assured," the IMF said.

Chinese authorities deserve credit for "skillful economic management, which has reduced the risk of overheating," the IMF said.

"Efforts to rein in credit and slow investment appear to have started to bear fruit, as evidenced by the recent signs of moderating economic expansion," the IMF said.

But the most recent data gives a "mixed picture" on whether the economy is actually slowing down, said Steven Dunaway, deputy director of the IMF's Asia and Pacific Department, at a press conference timed to coincide with the release of the review.

This makes the IMF "cautious about how much of a slowdown has occurred up to now," Dunaway said.

"Investment numbers still remain very strong and there is some suggestion in July perhaps investment started to pick up a little bit," he said.

And inflation is running at 6 percent seasonally adjusted rate over the past four months.

"A lot of this is confined to food and some energy categories, but there is always concern this could spill over," he said.

"We also are not entirely sure how much credit growth has slowed down," Dunaway said.

As a result, further economic reform by Chinese authorities will have a "decisive influence" on whether the country can avoid a hard landing.

A so-called soft landing would avoid a recession by slowing economic growth so resources are not strained. On the other hand, a hard landing would entail a recession or sharp slowdown that would interrupt the nation's development.

A number of IMF directors, and the IMF staff, recommended a tightening of monetary policy to facilitate a smooth slowdown.

In the short run, the IMF raised its forecast for China's real gross domestic product growth to 9.0 percent in 2004 from the previous estimate of 8.5 percent.

If administrative steps to slow the economy succeed, growth should moderate to a 7.5 percent rate in 2005.

Inflation should rise to about a 3-4 percent level over the next year and a half before dissipating.

So far, the Chinese government has mainly relied on administrative measures to slow the economy.

"A number of directors, however, felt that the administrative measures taken so far may not be sufficiently effective in reducing the risk of overheating and credit growth, and were of the view that a further tightening of the monetary policy stance would facilitate a soft landing," the IMF said.

"We saw more of a pressing need for some additional monetary tightening to take excess liquidity out of the banking system. We thought that sooner would probably be better to ensure there is a nice slowdown in the economy," Dunaway said.

Ending the dollar peg

In its discussion of China's currency, which is pegged to the dollar, many IMF directors urged China to quickly take the first step toward more exchange rate flexibility.

The sense of urgency can be felt in the description of the IMF views.

"Many directors ...considered that, in the view of the present favorable circumstances, it would be advantageous for China to make an initial move toward greater exchange rate flexibility without undue delay, with some directors preferring that this move be made soon," the IMF said.

These directors said China could maintain capital controls even after it moves toward greater flexibility.

Dunaway said that additional capital may be needed to strengthen the Chinese banking system.

Non-performing loan problems have not been solved, he said.

China to suspend IPOs before new IPO rules

TUESDAY , 31 AUGUST 2004


SHANGHAI: China will temporarily suspend initial public offerings (IPO) while it formulates new rules on the pricing of IPOs, after a flood of new share issues have hammered the country's stock markets this year.

The stock market regulator made the announcement late today on its website but said additional share issues would not be affected.

"Before the notice is officially issued, apart from listed company's re-financing, there will temporarily be no more Initial Public Offerings organised," the China Securities Regulatory Commission said.

The Shanghai stock market has shed more than a quarter of its value since early April, hit mainly by official economic-cooling steps and a flood of new share issues.

The new rules aim to make the pricing of new stocks more market-oriented, by opening the process to bidding from institutions, rather than letting the company set the price itself under guidance from the regulator.

The new rules are now undergoing a public consultation period, and may be altered before they come into force.

The regulator did not provide a timetable.

The market had recently been hit by plans for a huge stock offer from Baoshan Iron and Steel Co Ltd, the world's fifth most valuable steelmaker.

Baosteel aims to raise up to $US3.7 billion ($NZ5.76 billion) to buy mills and other assets from its parent in what could be the largest fund-raising exercise on a mainland exchange. The move has sparked worries it would divert funds from shares in other firms.

But Baosteel's share offer will not affected by the notice as it is not a new IPO.

China Market Strategy


August’s Numbers are Supportive

August’s economic numbers are supportive, suggesting that the upcoming
interest rate hike, if any, will be the last measure of this round of economic
tightening. The uncertainties over the 4th Party Plenum and the possible interest
rate increases are holding back China H shares, which offer a good buying
opportunity. The chances for a rally in China H shares are rising with the
possibility that the China H-share index may test the high-end of our estimated
trading range of 4,000 – 5,000. Meanwhile, China A shares dropped to new
lows, signalling that QDII is coming soon.

China reports a good set of numbers. On balance, the numbers suggest that
China’s economy has slowed significantly while inflation is under control. With
the impact of the good summer harvest starting to kick in, we believe that lower
food prices will drive consumer prices lower in the coming months. This supports
a soft landing of the economy, as no further measures are needed to fight
inflation. CPI rose 5.3% in August, the same as July’s figure and slightly below
the consensus estimate of 5.4%; fixed asset investment in July rose 26.6%, but
the figure for the first eight months has yet to be released; M2 growth slowed
further to just 13.6%, significantly below the government target of 17%; industrial
production grew 15.9%, only slightly ahead of July’s figure.

But an interest rate hike is still in the cards. China is still likely to raise
interest rates for four key reasons. First, the real interest rate is almost zero
(benchmark rate stands at 5.31%). Second, property prices have been firm,
something that the government does not want to see. Third, the US is expected
to raise interest rates. Fourth, the upward pressure on the Rmb is easing given
the expected trade deficit for China this year. Last, China wants to demonstrate
its commitment to adopting a market mechanism in fine-tuning economic growth.
When will it happen? In our view, it may be announced after the FOMC meeting
on September 21 and before the long holiday starting October 1st. This uncertain
factor appears to be one of the key reasons holding back HK-listed China
stocks. However, once it’s confirmed, we expect a relief rally in China stocks as
the move may signal that there will be no further measures to cool off the
economy and the government will just fine-tune the policies that it has put in
place.

Another market focus: the 4th Party Plenum. The 4th Party Plenum, which
begins this Thursday, is the other key factor probably holding back China stocks.
A preview for this event can be found in yesterday's daily reports. Except for
property lending, we believe that news coming out of the Party Plenum should
support the equities markets.

Chances for year-end rally are high. China H shares have historically had an
upward bias from September to March. The chances for a 2004 year-end rally
are rising as the implementation of QDII may come soon in light of the continued
weakness in China A shares. Equally important, the two key uncertainties - the
4th Party Plenum and the possible interest rate hikes - will soon be out of the
way. We recommend investors take any pullback as an opportunity to buy.

There are some articles about investing in China in the following site:

http://invest.analytics-asia.com/

Kwongmeng, why don't you do us all a favour and post the report here instead of getting us to the other site?

China Seeks Brokerage Reform

22/09/2004 08:38




(From THE WALL STREET JOURNAL)

Beijing -- WORRIED ABOUT THE possibility of a financial crisis erupting from another corner, Chinese regulators are stepping up efforts to clean up the country's ailing securities industry.

China's financial reforms so far have focused mostly on the country's debt-ridden banks. But after several securities-firm scandals and the stock market's recent retreat to five-year lows, regulators are turning their attention to brokerage houses. The China Securities Regulatory Commission has started to allow market-driven merger bids among big brokerage houses, welcomed more foreign investment and given brokerage houses more flexibility to design investment instruments to better meet the needs of their customers, hoping to weed out loss-plagued securities firms and help the good ones survive.

A change in the agency's leadership could propel further reforms. Current commission head Shang Fulin is expected to be succeeded next month by Huang Qifan, a vice mayor of the western city of Chongqing who is seen as more aggressive and ambitious than his predecessor.

"We have witnessed an obvious turnaround in regulators' policies," says Zhao Xijun, a securities expert at China Renmin University. "They are now opting to rely more on market power to clean up the industry . . . and decreasing [excessive] government interference."

Still, some say that may not be enough. Fred Hu, a managing director for Goldman Sachs in Hong Kong, says "sweeping, comprehensive reform is needed . . . but the government has insufficient political will to deal with the problems." He points out that Beijing early this year helped bail out Southern Securities Co. with an eight billion yuan ($966.4 million) loan after it accrued steep losses from what regulators have described as poor management and illegal practices. Officials at the China Securities Regulatory Commission declined to be interviewed for this article.

China's brokerage sector has racked up huge losses in recent years, largely because of speculative investments in a poorly regulated, nontransparent stock market. Zhao Xiao, an analyst at the Research Center of the state-owned Asset Supervision and Administrative Commission, estimates that beginning in 2001, the sector's operating losses each year have exceeded 100 billion yuan. He says the figure would be much larger if losses incurred from customers' investments and embezzlement were included, but those figures aren't readily available.

Meanwhile, several high-profile scandals in which brokers allegedly embezzled billions of yuan of clients' funds have contributed to investors' growing distrust.

The benchmark Shanghai Composite Index, which closed at a five-year low of 1,260.32 points on Sept. 13, has bounced back more than 10% during the past week on expectations of a regulatory shake-up and possible new market-supporting policies, though it fell 1% to 1448.56 yesterday. But the industry's woes still cause concern about a larger financial crisis.

For years, state-run and private-sector companies have entrusted billions of yuan to securities firms to invest. Complete figures aren't available, but funds parked with securities firms by publicly traded Chinese companies alone are estimated to total more than 30 billion yuan, according to a report by Shanghai financial-data provider Financial China Information & Technology Co.

A large portion of these investments is thought to have been funded by bank loans taken out by companies hoping to profit on the difference between low interest rates on loans and higher returns promised by securities firms. But in a bear market, securities firms often can't pay the promised returns, resulting in losses for both the brokerage houses and their customers. State-run insurer PICC Property & Casualty Co., for example, recently disclosed it was having difficulty recovering 413 million yuan it had entrusted to Hantang Securities Co. to invest, after Hantang ran into financial troubles and regulators put it under trusteeship of a state-run company this month.

Deheng Securities Co., another troubled brokerage house, was sued by a handful of publicly traded Chinese companies this spring for allegedly embezzling a total of one billion yuan from them. Regulators have put Deheng under trusteeship of another state-run company.

"The brokerage sector is more vulnerable to financial crisis, for it lacks the risk-control and bailout mechanisms available to [China's state-run commercial] banks," says Renmin University's Mr. Zhao.

As it moves to allow the market to determine the winning brokerage houses, the government, which traditionally manipulated mergers to rescue ailing brokerage houses, is allowing the industry's first hostile takeover bid, a tender offer by Citic Securities Co. for GF Securities Co. If the move succeeds, publicly traded Citic Securities would become China's biggest brokerage house.

Published October 22, 2004

China's economic boom still sizzling

SHANGHAI, China - China's economic boom is still roaring despite efforts to cool sizzling growth, with gross domestic product climbing 9.5 per cent in the first three quarters of this year, the government reported on Friday.

The consumer price index moderated slightly, however, with a 5.2 per cent increase in September compared to a year earlier, a trend that may ease concerns over surging inflation.

China's GDP climbed 9.5 per cent in the first nine months of the year from the year-ago period to 9.314 trillion yuan (S$1.89 trillion), the National Bureau of Statistics said.

During the third quarter alone, the economy expanded 9.1 per cent on-year.

China's leaders have been trying to slow growth that they say is fueling inflation and straining the country's resources and fragile financial system. They have ordered banks and local governments to cut back on construction projects and redundant industrial investments, so far with limited results.

In recent weeks, officials have indicated they have basically given up on slowing growth to the government's original target of 7 per cent for this year.

Spending on construction, factory equipment and other fixed assets surged 27.7 per cent in the first nine months of the year, compared with a year earlier, the statistics bureau reported.

That compared with a 30.3 per cent rise in the first eight months of the year - an indication of progress in controlling such investments.

Growth in such investments hit a peak rate of increase of 53 per cent early this year and slipped to 18.3 per cent in May. It has rebounded in recent months.

The 5.2 per cent increase in consumer prices, a slight decline from seven-year high increases of 5.3 per cent in July and August, was below analysts' expectations of a 5.6 per cent jump in the benchmark measure for inflation.

But consumer demand has remained strong despite higher prices, with retail sales rising 13 per cent in September over a year earlier.

China Says It Will Pursue a `More Flexible' Currency (Update3)

Nov. 6 (Bloomberg) -- China's central bank said it plans to ``create a more flexible exchange-rate mechanism,'' responding to an International Monetary Fund recommendation that the yuan's peg should be relaxed.

``We will take measures in various ways to further this reform, in a gradual and steady manner,'' the People's Bank of China said in a statement on its Web site. In keeping with earlier government comments, it didn't give a timetable. The IMF said yesterday that a more flexible currency would help China achieve a gradual economic slowdown.

China buys dollars to ensure the yuan stays at about 8.3 per U.S. dollar. The government is concerned that a loosening of its nine-year-old currency peg might trigger capital inflows, hampering state efforts to cool the economy, according to the IMF report. Investment from abroad forces the government to issue more yuan, boosting the money supply.

China wants some ``fluctuation'' in the yuan while limiting exchange-rate movements, Guo Shuqing, head of the State Administration of Foreign Exchange, was cited by China Reform Daily as saying on Nov. 4.

The Singapore dollar yesterday rose to its strongest in almost five years, leading a rally in Asian currencies, on speculation China will allow the yuan to gain in the months ahead.

Asian Currencies Advance

``The yuan appreciating gives more room for Asian currencies to follow,'' Thio Chin Loo, a currency strategist at BNP Paribas in Singapore, said yesterday.

Singapore's currency yesterday rose 0.2 percent to close at S$1.6593 per U.S. dollar. It rose to S$1.6529, the strongest since Jan. 5, 2000. The Taiwan dollar climbed as high as NT$33.025, the most since April 27, according to Taipei Forex Inc. It may advance to NT$33 by year-end, Thio said.

The South Korean won gained 0.3 percent to 1,110.55 against the dollar at its close at 4 p.m. Seoul time, according to Seoul Money Brokerage Services Ltd.

The yuan ``policy is being discussed more frequently and with a bit more detail,'' David Simmonds, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore, said yesterday. ``The idea that discussion about some sort of policy change is a meaningful one and they are preparing to make some sort of adjustment at some point is entirely credible.''

His bank expects China will peg its yuan to a basket of currencies in the middle of 2005.

Forecasts

Merrill Lynch & Co. said it expects China to ease its yuan peg before the end of this year. JPMorgan Chase & Co. forecasts it will happen in three to six months.

Currency traders yesterday raised bets the yuan will gain, pushing forward contracts to a seven-month high.

The yuan would rise to 7.917 against the dollar in a year if freely traded, forward contracts showed at 4:05 p.m. yesterday in Hong Kong, from 7.977 late in Asia on Nov. 4. The contracts allow investors to bet on the future value of a currency that isn't fully convertible or hedge investments that are denominated in it.

The gap between the fixed exchange rate and the future value of the yuan implied by the forward contracts widened to -0.3600, compared with -0.3000 late yesterday in Asia. The gap expanded to as much as -0.3850, the widest discount since April 2.

China has imposed lending and investment restrictions as it tries to slow growth from a seven-year high of 9.3 percent last year. The central bank on Oct. 28 raised its benchmark interest rate for the first time in nine years and Vice Finance Minister Lou Jiwei today said the state will invest less next year to help bring about a sustainable pace of growth.

Cut Investment

``We will reduce the size of the budget deficit and cut public investment,'' Lou said at a Beijing conference attended by senior government officials. ``The success we have achieved in adjusting economic growth is still preliminary and incremental.''

Expansion in the world's seventh-largest economy eased to 9.1 percent in the third quarter from 9.6 percent in the previous three months and the State Information Center predicts growth will ease to 8.7 percent this quarter.

The government is trying to cool expansion in industries including autos, steel and cement it says are expanding too rapidly, clogging transport links and straining supplies of electricity and raw materials. Central bank Deputy Governor Li Ruogu said last month growth of 7 percent to 8 percent would allow for a healthy economy for the next two decades.

Inflationary Pressure

Growth is expected to slow to 8.5 percent next year from an estimated 9.3 percent in 2004, the State Information Center said in its 2005 China Industry Development Report, which was released at the conference.

The center, a research unit of the State Development and Reform Commission, China's top planning body, said it expects fixed-asset investment to rise 21 percent this quarter and inflation to average 3.8 percent.

M2, the broadest measure of the money supply, is expected to increase 16 percent to 17 percent next year, the report said. The indicator, which includes cash and all deposits, rose 14 percent in September, staying within the central bank's 17 percent target for a fourth straight month.

``The current money supply growth is basically appropriate,'' the central bank said in today's statement. Still, ``we see a comparatively large amount of fixed-asset investment and inflationary pressure.''

Fixed-asset investment rose 28 percent in the first nine months, outpacing the economy's 9.5 percent growth. Inflation slowed to 5.2 percent in September from a seven-year high of 5.3 percent in each of the previous two months.



To contact the reporter on this story:
Xiao Yu in Beijing at yxiao@bloomberg.net

To contact the editor responsible for this story:
Reinie Booysen in Singapore at rbooysen@bloomberg.net
Last Updated: November 6, 2004 08:28 EST

China Plans to Cut State Investment to Cool Economy (Update2)

Nov. 6 (Bloomberg) -- China's government will trim spending next year, boosting state efforts to slow economic growth to a more sustainable pace, Vice Finance Minister Lou Jiwei said.

In the first eight months of the year, the central government's investment in roads, bridges and other fixed assets rose 4.3 percent to 501 billion yuan ($61 billion), according to the National Bureau of Statistics. Including spending by local governments and state-controlled companies, investment jumped 26 percent to 1.86 trillion yuan.

``We will reduce the size of the budget deficit and cut public investment,'' Lou said at a Beijing conference attended by senior government officials. ``The success we have achieved in adjusting economic growth is still preliminary and incremental.''

Expansion in the world's seventh-largest economy eased to 9.1 percent in the third quarter from 9.6 percent in the previous three months as the government restricted lending and investment. The central bank on Oct. 28 raised its benchmark interest rate for the first time in nine years and the State Information Center forecast growth will ease to 8.7 percent this quarter.

The government is trying to cool expansion in industries including autos, steel and cement it says are expanding too rapidly, clogging transport links and straining supplies of electricity and raw materials. Central bank Deputy Governor Li Ruogu said last month growth of 7 percent to 8 percent would allow for a healthy economy for the next two decades.

Investment

Growth is expected to slow to 8.5 percent next year from an estimated 9.3 percent in 2004, the State Information Center said in its 2005 China Industry Development Report, which was released at the conference. The center is a research unit of the State Development and Reform Commission, China's top planning body.

The median forecast of eight economists in a Bloomberg News survey this month was for growth to slow to 8.4 percent in 2005 from an estimated 9.2 percent this year. The economy grew a revised 9.3 percent last year, the fastest pace since 1996, as investment in factories, offices and other fixed assets surged 28 percent.

Investment increased 28 percent in the first nine months after jumping 53 percent from a year earlier in January and February. Growth may pick up again as government restrictions are having little impact, according to Wang Yu, deputy director of the monetary policy department at the People's Bank of China.

``Of 17.3 trillion yuan of projects that have been examined by the State Development and Reform Commission, only 1 percent have been cancelled,'' he said at the conference. ``Inflationary pressures still exist.''

Inflation

Fixed-asset investment will probably rise 21 percent this quarter and inflation is expected to average 3.8 percent, the State Information Center said in its report. Inflation is forecast to average 4 percent both this year and next, it said.

China's inflation rate fell to 5.2 percent in September from a seven-year high of 5.3 percent in each of the previous two months.

Retail sales, which the government is counting on to sustain economic growth as investment cools, rose 14 percent in September and will probably increase 13 percent this quarter, the State Information Center predicted. Consumer spending will probably account for 57.5 percent of gross domestic product this year, 2.1 percentage points more than in 2003, it said.

Export growth is projected to slow to 21 percent in 2005 from an estimated 31 percent this year and imports are likely to climb 23 percent after surging about 38 percent in 2004, the report said. The State Information Center forecast a $2.8 billion trade deficit for next year and a $4.5 billion surplus for 2004.

M2, the broadest measure of the money supply, is expected to increase 16 percent to 17 percent next year, it forecast. The indicator, which includes cash and all deposits, rose 14 percent in September, staying within the central bank's 17 percent target for a fourth straight month.

People's Bank of China's Wang said money supply growth is ``within a reasonable range.''



To contact the reporter for this story:
Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible this story:
Bruce Grant at bruceg@bloomberg.net
Last Updated: November 6, 2004 04:46 EST

China's Industrial Production Growth Slowed to 15.7% (Update4)

Nov. 10 (Bloomberg) -- China's industrial production rose in October at its slowest pace in three months as government lending restrictions hurt sales of automakers including General Motors Corp. and Brilliance China Automotive Holdings Ltd.

Production rose 15.7 percent from a year earlier to 489 billion yuan ($59 billion), led by steel and household appliances, after climbing 16.1 percent in September, the Beijing- based National Bureau of Statistics said in a statement on its Web site. Sedan car production fell 14 percent.

The figures suggest loan curbs ordered by Premier Wen Jiabao are only slowing expansion in some of the industries the government wants to cool. China last month raised benchmark interest rates for the first time in nine years and economists including Joseph Lau say further increases are likely.

Output ``is still too strong for the government's comfort and we expect it to slow further going forward,'' said Lau, an economist at Credit Suisse First Boston in Hong Kong. The government would like to see production growth ``slow down to at least 12 percent,'' he said.

Last month's increase in industrial production outpaced growth in Asia's other leading economies. Japan's production increased 3.8 percent from a year earlier in September, South Korea's rose 9.3 percent and Indian output increased 7.9 percent in August, official figures show.

Steel, Dishwashers

Stocks rose after today's report. The Shanghai Composite Index, which tracks yuan-denominated A shares and foreign- currency B shares on the city's stock exchange, advanced 24.82, or 1.9 percent, to 1332.24 at the 11:30 a.m. local time break. The Shenzhen Composite Index, which tracks the smaller of the two Chinese markets, added 5.29, or 1.6 percent, to 336.06.

The production report ``adds to further evidence that China's economic growth is slowing down and the government's tightening measures are really working,'' said Lu Liang, an analyst with China Securities Co., in Shanghai.

October's increase in production was the smallest since July when output rose 15.5 percent. The median of seven economists' forecasts collected by Bloomberg News was for a gain of 15.8 percent last month.

``With monetary policy being tightened and with continued administrative tightening, industrial activity will continue to slow,'' said Yiping Huang, an economist at Citigroup Inc. in Hong Kong. ``But it will be a very gradual slowdown.''

Sustainable Growth

Vice Finance Minister Lou Jiwei said Nov. 6 that state investment will be cut next year to help slow economic growth to a more sustainable pace. The central bank on Oct. 29 raised benchmark lending and deposit rates by 27 basis points to 5.58 percent and 2.25 percent, respectively.

Expansion in the world's seventh-largest economy eased to 9.1 percent in the third quarter from 9.6 percent in the second and the State Information Center, a research unit of the nation's top planning body, predicts growth will slow to 8.7 percent in the final three months of the year. Central bank Deputy Governor Li Ruogu said last month growth of 7 percent to 8 percent would allow for a healthy economy for the next two decades.

``If we're talking about slowing economic growth, say, slowing from 9 percent to 7 percent -- the growth rates are still so high that it won't have much effect,'' Randy Baseler, vice president of marketing at Boeing Co., the world's second-largest maker of commercial planes, said yesterday at a conference in Hong Kong.

Power Plants

China's raw steel output surged 25 percent last month and production of dishwashers and electric fans jumped 395 percent and 55 percent, respectively, today's statement said.

General Electric Co., The world's biggest maker of power generation equipment, jet engines and locomotives, two days ago repeated a forecast that China sales will jump to $5 billion in 2005 from $3.5 billion this year.

The government is encouraging investment in power plants to ease capacity constraints while clamping down on expansion in industries including real estate, cement and autos. Power shortages affected four major cities and 24 of China's 27 provinces this year.

The nation's electricity generation increased 16 percent in October, outpacing the third quarter's 12 percent growth, coal production gained a similar amount and natural gas output surged 22 percent, today's statement showed.

Car Sales Slump

Rising interest rates won't reduce China's demand for raw materials, said Charles ``Chip'' Goodyear, CEO of BHP Billiton, the world's largest miner.

``I don't expect much impact at all,'' Goodyear, 46, said yesterday at a Melbourne Mining Club luncheon. ``I expect another rate rise in the next few months or early next year.''

Still, China's lending restrictions are cooling auto sales. Passenger car sales dropped 16.5 percent in October, the Shanghai Daily said yesterday, citing data from the National Car Makers Association.

General Motors, the world's biggest automaker, said in October that sales growth in China slowed in each of the previous two months. Brilliance China, which makes cars in China with Bayerische Motoren Werke AG, said profit dropped 29 percent in the first half as it sold fewer minibuses and Zhonghua sedans.

BMW, the world's second-largest maker of luxury cars, saw sales growth in China slow to 11 percent in the first 10 months from 55 percent in the first half, Chief Executive Helmut Panke said yesterday in Beijing.

Morgan Stanley Chief Economist Stephen Roach said growth in China's industrial production may slow to between 11 percent and 13 percent in mid-2005, compared with an earlier prediction of 8 to 10 percent growth. Roach cited ``extensive discussions'' with unidentified Chinese officials as reason for the change in a Nov. 8 report.

``The combination of interest rate hikes and the other restraint measures probably will help slow production to maybe the 10 to 15 percent range next year,'' said David Cohen, director of Asian economic forecasting at Action Economics. ``That remains a very solid number.''

To contact the reporters for this story:
Philip Lagerkranser in Hong Kong at lagerkranser@bloomberg.net

To contact the editor responsible this story:
Bruce Grant in Hong Kong at bruceg@bloomberg.net
Last Updated: November 9, 2004 23:55 EST

Published November 11, 2004

China sets rules for corporate pensions to invest in
stocks
Move expected to spark inflow of 100b yuan into stock
markets


(SHANGHAI) China has set up a framework to allow
corporate pension funds to invest in the US$460
billion stock market under new guidelines unveiled
yesterday, the latest initiative to support and
develop lumbering capital markets.


Once implemented, pension funds estimated at some 100
billion yuan (S$20 billion) could be let on to
mainland bourses, which rival Hong Kong as Asia's
largest after Japan, according to official financial
newspapers.

Another 80-100 billion yuan could flow into markets
annually up to 2014, by which time more than one
trillion yuan would have been invested, the official
Shanghai Securities News reported.

'The inflow of pension funds will not only support the
long-term stability of the markets, but also
strengthen the influence of institutional investors,'
the newspaper said. It did not give a timeframe for
when that would happen.

A widened scope for pension funds could offer new
business opportunities for a handful of foreign
players now exploring the corporate pensions market.

Taiping Life Insurance Co, in which Benelux banking
and insurance group Fortis owns 24.9 per cent, won
approval to set up China's first corporate pensions
fund management firm about half a year ago.

A Taiping executive said earlier this year it expects
managed corporate pensions to hit two trillion yuan by
2009 versus 35 billion yuan at the end of 2003.

American International Group, the world's largest
insurer, would also be partnered with China's largest
listed lender Merchants Bank in the business, state
media have said.

Beijing has been studying market-boosting measures
from luring more foreign cash to widening financing
channels for embattled brokerages, state media has
said. The benchmark index had slid 26 per cent since
early April, hit by government efforts to curb credit
and slow an economy in danger of overheating.

In some of the latest reforms, the Cabinet agreed in
principle to let banks set up mutual funds, a step
heralding the return of bank money to stock markets
after regulators banned the practice in the mid-1990s.

Corporate pensions remain a mystery to many in China,
a country where average urban annual incomes stood at
8,472 yuan in 2003.

The country's cradle-to-grave welfare system is
crumbling, replaced by a mish-mash of government and
corporate plans that experts say is riddled with
shortcomings from poor returns to inadequate coverage.

So Beijing is pushing firms to take up the slack.

Unlike some developed countries, there is no enforced
requirement to pay into a company plan. But the need
to encourage more pension savings is clear.

People aged over 60 make up about a tenth of China's
1.3 billion people, according to the United Nations.

That's expected to rise to 28 per cent by 2040, a
larger share of old folk than projected for the United
States. - Reuters

Zhou comments boost yuan forwards
More bets that Chinese currency to be unpegged -report
By CBS MarketWatch
Last Update: 4:45 AM ET Dec. 7, 2004

TOKYO (CBS.MW) - Yuan forwards rose after Chinese central bank Governor Zhou Xiaochuan said the country's currency peg is a hazard for banks and companies, according to a published report.

"Rigid exchange rates amid imbalances in revenues and expenditures present huge risks," Zhou said, according to Bloomberg News. He didn't elaborate on how or when China might change its exchange rate.

This year, the People's Bank of China has been reviewing the yuan's effective pegged at about 8.28 to the dollar, but so far has been immovable in the face of global pressure for a revaluation. China's trading partners argue that the peg keeps the yuan undervalued, and therefore cheapens its exports, exacerbating both the U.S.' trade deficit and current-account deficit problems.

The gap between the peg and the future value of the currency implied by offshore market for nondeliverable yuan forwards widened to 4,300, compared with 4,213 Monday. It was below 4,000 as recently as last month.

Yuan forwards are non-deliverable because they are settled in dollars, not local currency. Such contracts allow investors to bet on or hedge against the future fluctuations of a currency that is not fully convertible.

China's annual economic policy meeting ended in Beijing last weekend with no concrete hints on when the yuan would be unpegged. The government pledged to maintaining controls on investment and keep monetary and foreign exchange policy stable, according to the official Xinhua News Agency.

China to Resume Stock Sale Approvals After Four-Month Freeze
Dec. 11 (Bloomberg) -- China will resume approvals of first- time domestic share sales on Jan. 1 after a four-month suspension, implementing new rules that will let the Asian's third-largest market set the price of new stock.

The rules published in the China Securities Journal today require sale arrangers to set a price range and then gauge demand by bid from institutional investors. China's securities watchdog used to impose an unofficial price limit of 20 times earnings on first-time share sales.

``The new system has given institutional investors, such as funds, power in setting prices,'' the China Securities Regulatory Commission said in the statement. ``This will attract more institutional money into China's capital market.''

China is reducing the government's role in the nation's $456 billion stock markets as part of efforts to improve their efficiency and transparency and boost investor confidence. PetroChina Co. and Bank of Communications are the companies in line to sell shares domestically for the first time, the Beijing News reported.

Approval Freeze

China companies raised 48 billion yuan ($5.8 billion) in domestic shares sales in the first eight months of the year. The stock regulator suspended approval of sales on Aug. 30, pending rule revisions.

China is scrapping a price-earnings ceiling that was imposed to prevent shares being sold at inflated values. The Shanghai composite index trades at an average price-earnings ratio of 27.8 times, compared with 14.8 times for the Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong.

Under the new rules, institutional investors who may participate in the book-building process to price share sales include funds, securities firms, trust companies, insurers, qualified foreign institutional investors and finance companies, the statement said. The number of fund companies and foreign institutional investors must account for at least half of the total of those participating.

Although China's stock regulator will be less involved in price-setting, it said ``guidance'' will be given when it considers that prices have been set irrationally. It will continue to control the pace of new share sales.

The rules require that companies must calculate their price- earnings ratios based on profit from the previous year and the number of shares after the sale. Profit must exclude extraordinary gains.

The Shanghai composite index has fallen 12 percent this year, down only 1.8 percent since new share sales were frozen.


To contact the reporter on this story:
Samuel Shen in Shanghai Sshen3@bloomberg.net

To contact the editor responsible for this story:
Bruce Grant in Hong Kong at bruceg@bloomberg.net
Last Updated: December 10, 2004 21:58 EST

Data make case for yuan revaluation
Merrill Lynch: speculative money still flowing into China

http://cbs.marketwatch.com/news/story.asp?...%7D&siteid=mktw

Anyone interested in HSI warrants? :hot:

http://stockcharts.com/def/servlet/SC.web?c=$HSI,uu[w,a]daclyyay[pc10!c40][vc60][iUb14!La12,26,9]&pref=G



:hot:

santa Posted on 30 Jan 2005, 02:10 PM

Hi Santa :wave: .... nope ... have not touch warrants for a long time leow... last one i touch expire worthless :cry: :cry: :cry: Entropin :cry: :cry: :cry:

If yr in it.. .something that may interest you :wave:



(www.cyclesman.com)

Mulan,

Thanks! I am vested recently and hope to cash in (out :banghead: ?) after CNY

:bow:


am still digesting the Rule Number 1 from phantom. My personal opinion is that this rule is better applicable in Futures rather than stocks.

what do you think? :scratch:

Hi Santa... yea the phantom was previously from the pits before switching to the screens... nevertheless his rules sometimes favor the FUTURES instead of Shares as Futures are not based on T plus 5-7 days settlement... thus i believe leading to a slightly different ball game. Still a gd read as always :wave:

hi hi Santa, you're of the fairer sex, judging
from your "avatar" .....

gotta bear this in mind ... keke
lest i make ungentlemanly remarks, cos me kang
if i do, pls forgive, for guyz are made of insects
and frogs and all not-nice things keke
no excuse though

hmm the other bu(s) in MC wud sure
welcome another lady and me, too

hi mulan and $3 :wave:

the "Phantom" is great. It opens up my mind on another trading strategies. :cigar:


$3, keep your ungentlemanly remarks coming... cos me kang ...
:guns:

i say Santa...solli for the gender mix-up

hi hi, but no expletives or foul language from me la ..keke

else no decorum here...keke

my :bow: apologies

Ah moneytree...you are exposed...naked...and trying to hide behind your er avatar Fig Leaf? :scratch:

DJ Asian Shares End Mixed; Nikkei Breaks 7-Day Downtrend
18 May 2005, 19:38

=DJ Asian Shares End Mixed; Nikkei Breaks 7-Day Downtrend

HONG KONG (AP)--Tokyo shares broke a seven-day losing streak to end higher as investors snapped up shipping and oil stocks. But other Asian markets closed mixed, despite Wall Street's rise in the past two days.

Japan's Nikkei Stock Average of 225 selected issues rose 10.02 points, or 0.1%, to finish at 10835.41. The Nikkei had fallen a total of 3.3% in the previous seven sessions, including Tuesday's loss of 121.83 points, or 1.1%.

Investors bought into shipping, oil, construction and other selected blue chips on Wednesday, following recent declines. Traders, however, said selling by overseas investors still weighed on the market.

Gainers included Cosmo Oil Co., TonenGeneral Sekiyu K.K. and shipping issues like Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd.

Construction stocks Nippon Steel Corp. and JFE Holdings Corp. also advanced. Tech issues were mixed, with Kyocera Corp. and Canon Inc. rising, while Sony Corp. and Advantest Corp. closing lower.

In New York Tuesday, stocks vaulted higher for a second straight session as investors welcomed the U.S. Treasury Department's move to put pressure on the Chinese currency system and, perhaps, eventually reduce the U.S. trade deficit.

The Dow Jones Industrial Average rose 0.8%, while the tech-focused Nasdaq composite index gained 0.5%.

Despite Wall Street's rise, Hong Kong shares retreated for the third consecutive session on concerns over an outflow of foreign funds, as speculation on an appreciation of China's currency, the yuan, eased.

The Hang Seng index lost 40.02 points, or 0.3%, to 13627.01. On Tuesday, the Hang Seng plunged 199.78 points, or 1.4%.

In currency dealings, the U.S. dollar strengthened against the Japanese yen. It bought 107.49 yen in late Tokyo trading, up 0.31 yen from late Tuesday in Tokyo and above the 107.41 yen it fetched in New York late Tuesday.

Elsewhere:

BANGKOK: Thai shares advanced on gains by energy and construction companies, following recent declines. The Stock Exchange of Thailand Index ended up 7.58 points, or 1.1%, at 672.19.

BOMBAY: Indian shares declined on losses by technology and motor issues, but late bargain-hunting lifted the key index from its lows. The Bombay Stock Exchange's 30-share Sensitive Index, or Sensex, ended 19.00 points, or 0.3%, lower at 6447.00.

JAKARTA: Indonesian shares declined, led by selling in most bank stocks on renewed worries that the central bank will continue to raise its key interest rate. The Composite Index sank 5.510 points, or 0.5%, to 1040.263.

KUALA LUMPUR: Malaysian shares were dragged lower by hedge funds selling their holdings in local shares. The weighted Composite Index of 100 blue chips lost 5.02 points, or 0.6%, to 886.37.

MANILA: Philippine shares closed marginally higher on bargain-hunting in certain blue chips, led by Philippine Long Distance Telephone Co. and Ayala Land. The 30-company Philippine Stock Exchange Index gained 2.92 points, or 0.2%, at 1879.39.

SEOUL: South Korean shares edged up slightly on gains by select technology stocks on continued hopes of a recovery in the industry. The Korea Composite Stock Price Index, or Kospi, rose 3.2 points, or 0.4%, to 930.36.

SHANGHAI: China shares ended a touch higher, led by gains in power issues. The Shanghai Composite Index gained 3.33 points, or 0.3%, to close at 1102.97.

SINGAPORE: Share prices dropped after Singapore cut its full-year economic growth forecast. The Straits Times Index edged down 0.72 points, or 0.03%, to 2153.65.

SYDNEY: Australian shares rebounded, boosted by Wall Street's gains. The S&P/ASX 200 index closed up 33.00 points, or 0.8%, at 3987.50.

TAIPEI: Taiwan shares dropped, led by losses in makers of computer chip. The Weighted Price Index fell 3.18 points, or 0.1%, to 5890.83.

WELLINGTON: New Zealand shares retreated as early gains were wiped out by offshore sellers. The NZSX-50 index lost 3.49 points, or 0.1%, to 2963.38.

-Edited by Craig Lewis
(END) Dow Jones Newswires

May 18, 2005 07:38 ET (11:38 GMT)

DJ MARKET TALK:HKMA Decision Likely Prelude To China CNY Move

2356 GMT [Dow Jones] HKMA's decision to adjust its currency peg likely a prelude to possible China move on FX regime, as it's aiming to deter speculator-led buying of HKD as proxy for CNY revaluation, says senior Tokyo dealer; says this decision could lead to speculators using Asian FX other than HKD - such as JPY, KRW, SGD and TWD - to bet on stronger CNY; but adds USD/JPY now supported by bids from Japan importers in 106.50-107.00 area, though any rise will be capped by exporters offers above 107.50; pair last 107.10. (RNH)


Contact us in Singapore. 65 64154 140;
MarketTalk@dowjones.com


(END) Dow Jones Newswires

DJ MARKET TALK: Some Say Asian Currencies May Rise On HKMA

2348 GMT [Dow Jones] Some say HKMA action to curb speculation on HKD isn't necessarily bearish for East Asian currencies; HK may have made policy change to keep HKD stable during imminent CNY rise. "It depends on how the market perceives this move. If they see it as a hint China may change its position on the yuan then Asian currencies may strengthen," says StanChart's Tai Hui; notes JPY fell to around 107.60 vs USD after HKMA news but then strengthened to near 107 - "if Asian currencies take a cue from the yen then they'll be positive." While HKMA action unsettling for FX players "it doesn't mean investors will be bearish on Asian currencies as a whole."(RXM)

Lets appreciate the dollar..for now..keke

China Currency Revaluation - WHAT IMPACT?

Speculation of a revaluation of the Chinese currency, the Renminbi (often referred to as the Yuan), is running at fever pitch. While the issue has been around for the last few years the ballooning Chinese trade surplus and a range of comments from "official" Chinese sources suggests a move is getting closer. This is all coming amid rising trade frictions between China and the US (and Europe). The US Treasury has labelled China's currency regime as "highly distortionary" although Chinese authorities have indicated that any move must be justified by Chinese interests and China won't simply bow to foreign pressure.

This note looks at the likely nature of a Renminbi revaluation and what the implications might be. While a revaluation appears to be getting closer, there is a danger the whole issue is becoming overhyped - particularly given the likelihood that any move when it occurs will be small.

Fixed Exchange Rates Usually Run Into Trouble

For ten years or so the Renminbi has been fixed to the $US at 8.2765 (ie, $US1 buys 8.2765 Renminbi) with a trading band of 0.3% either side. History is riddled with fixed currency exchange rate arrangements that have run into trouble. While fixed exchange rates provide certainty they can lead to trade imbalances if set too high or too low and they do result in some loss of control of domestic monetary conditions. Triggers for changes in fixed rate regimes in the past have included unsustainable trade deficits or surplus and/or bouts of speculative capital inflows or outflows or simply a desire to get back some control of domestic conditions.

The end result is that the government either moves to a floating exchange rate (ie, lets the market decide the appropriate rate), simply adjusts the fixed rate up (revalues) or down (devalues) as appropriate or adjusts the nature of the fixed exchange rate regime (eg, moves to a currency basket). Examples include the $US in the early 1970s, the British pound in 1992 or several Asian currencies during the 1997-98 Asian crisis. Prior to December 1983, the $A was periodically revalued or devalued against a fixed basket of currencies, but after that moved to a float.

China's fixed exchange rate to the $US has led to various problems. Firstly, China's trade surplus (ie, exports less imports) is now ballooning, running at double last year's level with the current account surplus now 4% of China's GDP. China now accounts for around one quarter of the US' monthly trade deficit of around $US60 billion. This suggests the Renminbi exchange rate is set too low to the $US giving Chinese exporters an unfair advantage in world trade. Secondly, it is making management of the domestic economy more difficult. Low interest rates in the US and perceptions that China's currency is undervalued have seen capital flooding in and threatening to overheat the economy (eg, the boom in Shanghai house prices). It has also necessitated a huge build-up in foreign exchange reserves held by China's central bank.

Signs of change

While pressure from the US for a revaluation of the Renminbi is intensifying, particularly with protectionist pressures hotting up (including US moves to reimpose quotas on Chinese textile imports), it is doubtful this is having much impact. Foreign pressure may even be counterproductive, as China does not want to be seen to be bowing to foreign influence. Nevertheless, there are signs China may be getting closer to a change:

* the current exchange rate is presenting problems for Chinese policy makers in the form of the expanding trade surplus;
* speculative capital inflows have been very strong leading to surging foreign exchange reserves and making domestic economic management difficult; and
* finally, the last few months have seen a range of comments from official sources suggesting a change is approaching. These range from Chinese Premier Wen Jiabao's comment at the National People's Congress in March that "we are working on a plan to reform the exchange rate system. And the timing and specific measures could come as a surprise" to China's Vice Premier Zeng Peiyan who recently said "we will steadily push forward reform of the Renminbi exchange rate formation mechanism"

While the official chatter out of China with respect to a shift in the Renminbi is suggestive of a move some time in the next few months it provides no guide as to timing. Recent attempts by investors and commentators to pin a move down to key dates (such as Golden Week in early May or this week's move to increase currencies that can be traded in China, including the $A) have so far met with little success. The bottom line is that it could occur any time in the next few months.

Don't Expect Too Much

Floating the currency: The chance of this is close to zero. At the time of the National People's Congress Premier Wen Jiabao made it clear that a large adjustment is out of the question. Floating the Renminbi would be too radical a move. The Chinese financial system is not ready for it. China needs to minimise the impact on its economy and neighbours and likes stability.

Revalue the currency by 10% (which would take the Renminbi to 7.52) or more. While this would help remove political and protectionist pressure from the US and Europe and reduce speculation of further moves, a large revaluation seems unlikely on the grounds that it is too radical a move. The probability of it occurring is probably around 25%.

Revalue by around 5% (taking the Renminbi to 7.88) or so. This could be in the context of a wider band and a move to a basket currency approach where the value of the Renminbi would be set against a basket of currencies representing China's major trading partners, with the level set such that it allows for a modest revaluation against the $US. A variation is to move to a basket approach and then gradually adjust it up by say 5% a year. The probability of this more modest approach and its numerous variations is around 75%. While it might see ongoing pressure from the US and speculation of further moves it is consistent with the authorities desire for stability.

The bottom line is that a major move in the Renminbi is unlikely.

Implications Of A Revaluation

While hype is running hot and may run even hotter, a 5% move is unlikely to have a major impact. In broad terms a Renminbi revaluation would have the following impacts:

* A mild negative for Chinese growth as Chinese exporters become less competitive and imports more competitive. The impact here would be small though. A 5% move up in the currency is trivial compared to the 60% or so increases in the value of the euro and $A versus the $US over the last four years. Chinese cost advantages are so large the impact will hardly be noticed, eg a Chinese unskilled factory worker gets paid 60 US cents an hour, whereas the US rate is $US16 an hour. On top of this some of the impact will be reduced by lower raw material costs, as imported commodities will cost less for Chinese manufacturers. China's stronger than expected growth of 9.5% for the year to the March quarter suggests that it could easily absorb a 5% or so revaluation. It would be consistent with our view that China's growth rate is likely to moderate to around 8% over the next year or so.

* A mild positive impact on the US trade deficit. To the extent that Chinese exporters are less competitive in the US a revaluation may help improve the US trade deficit. However, the small size of any move along with China's big competitive advantage suggests the impact will be hardly noticeable.

* Upwards pressure on other Asian currencies, including the Yen against the $US. To the extent that a Chinese revaluation makes its neighbours more competitive it might put upwards pressure on their currencies. However, again the impact is likely to be relatively small and could already be reflected in free-floating Asian currencies (given the forward market for the Renminbi is already pricing in a 5% revaluation).

* Neutral to maybe negative for the euro versus the $US to the extent that it has to bear less of the burden of adjustment for the $US.

* Ambiguous for commodity prices. Slower Chinese export demand is a small negative for commodities but against this commodities would be cheaper in China and in much of Asia in local currency terms potentially boosting their demand.

* A weaker $A against the Renminbi and other Asian currencies. But ambiguous for the $A against the $US. While the $A may rise slightly in the short term against the $US (as it is seen globally as being part of Asia), over time a move by China to revalue could be seen as a negative to the extent it takes pressure of free floating currencies to rise against the $US as part of the adjustment for the $US.

* Small negative for Australian exporters as Chinese growth slows resulting in less demand for Australian exports. However, the impact would be minimal as the lower $A versus Asian currencies will make Australian exports cheaper in China and Asia and in any case a 5% move in the Renminbi is unlikely to have a major impact on Chinese growth.

* Potentially higher US bond yields as China and some Asian central banks reduce intervention to stop their currencies rising and hence slow their purchases of US bonds. However, the impact would be marginal and probably temporary as a 5% or so revaluation in the Renminbi would not be enough to reduce speculation of further appreciation and hence the Chinese authorities would probably have to resume intervention to maintain the new, albeit higher level for their currency. Only a move to a free float by China and across Asia would substantially curtail Asian demand for US bonds putting significant upwards pressure on US bond yields.

* Now of course all of this assumes only a small (5% or so) move in the Renminbi. A larger move would have bigger consequences, but in the directions indicated.

Conclusion

Where there's smoke there's usually fire and all the recent chatter coming out of China suggests a change in the Renminbi's currency arrangement allowing a revaluation against the $US is likely sometime in the next few months. A move to a free float or a significant revaluation seems most unlikely. Rather a modest 5% or so move is likely initially possibly within the context of a move to a basket currency approach.

A revaluation would be marginally negative for Chinese growth, positive for the US trade deficit, positive for other Asian currencies, ambiguous for the $A and marginally negative for Australian exporters. However, the likely small adjustment in the Renminbi suggests any impact would be very small.

Dr Shane Oliver
Head of Investment Strategy and Chief Economist
AMP Capital Investors

The firming dollar will take the heat out of China's property market, reduce property price inflation and narrow the country's trade surplus, ING said.

The brokerage said that the yuan's peg to the dollar impedes the natural adjustment between the currencies' exchange rates, thus maintaining the competitiveness of Chinese tradable goods.

In this environment, non-tradable goods, such as property, assume a disproportionate share of inflation, which has led to rising prices in China's property market, the brokerage said.

"With the yuan peg and the weak US dollar suppressing rises in the prices of China's tradable goods, the real exchange rate appreciation comes via a margin squeeze brought about by rising prices of non-tradable goods and services," ING said, adding that property is the most important non-tradable good.

But the brokerage now expects the dollar to remain stable to strong.

Consequently, the yuan peg will effectively lessen the export competitiveness of Chinese goods and reduce the upward pressure on property prices, it said.

The brokerage maintains its early May prediction that a 10 pct revaluation of the yuan will occur in the next three months.

The firm does not expect the strong dollar and narrowing trade surplus to reduce political pressure on the Chinese government to revalue its currency.

- AFX

BEIJING (Dow Jones)--China's central bank chief argued strongly on Tuesday that now isn't the right time to revalue the yuan -- and his peers from the world's biggest economies raised no major objections.

Committed To Reform But Preparations Vital

Reform of China's foreign exchange system was a focus of the panel discussion among senior central bankers from the European Union, Japan, the U.S. and China at the International Monetary Conference in Beijing.

People's Bank of China governor Zhou Xiaochuan indicated China remains determined to revalue its currency when it feels it's ready, and will resist foreign pressure to do so earlier. And the tone of the discussion suggested he believes China can persuade the international community to accept its position.

"We have a strong determination to reform the foreign exchange regime," Zhou said, but he added that reform could only come when China was prepared.

"First, we need to reform financial institutions to fit into the future environment of foreign exchange flexibility," he said. "Second is growing our foreign exchange market so financial institutions can hedge their foreign exchange risk."

"We still need to review and reach a consensus on whether the preparation is done," Zhou told the conference, which is a forum of international monetary officials and commercial bankers.


Rapid Growth Still Vulnerable

Zhou also cited concern about the impact of a yuan revaluation on China's economy, which is growing rapidly but remains vulnerable to swings in the investment cycle and bad debt in its banking system. He said, for example, that any rise in the jobless rate could quickly damage consumer confidence.

"We are a big country...and we need to be responsible for our population," Zhou said.

Other central bankers stopped well short of confronting Zhou on the currency issue. European Central Bank president Jean-Claude Trichet and Bank of Japan deputy governor Toshiro Mutoh both said foreign exchange reform would be good for China, but added that the decision should be left up to Beijing.

Even U.S. Federal Reserve chairman Alan Greenspan didn't press for the major, immediate revaluation which U.S. Treasury officials, hoping to cut the U.S. trade deficit, have been demanding.

"I've said on numerous occasions I think it is to the advantage of China to allow a little more flexibility in the exchange rate," said Greenspan, participating in the discussion through a video link. He added: "It is something that I am certain they will take on reasonably soon."

China has said in the past that it won't change the yuan's peg to the U.S. dollar while financial markets are speculating about it, so Zhou's effort to dampen expectations for revaluation could conceivably be part of preparations for reform.


No Sense To Pressure Exports Now

But with many of China's export industries opposing a revaluation, and with Beijing insisting that the economy is fragile, the government would find it difficult to contradict its own rhetoric by acting.

"Don't be fooled if there's a good economic performance in the next few months," because that performance won't necessarily continue, Zhou said. The central bank therefore has no plan to raise interest rates, he said.

Some foreign economists continue to predict a major Chinese revaluation in the next few months. ING Wholesale Banking, for example, forecast Tuesday that China would allow a 10% rise of the yuan against the dollar in the next three months, as part of an effort to reduce protectionism in its major trading partners.

However, there are signs that a sizeable number of foreign analysts are becoming convinced by China's arguments.

International debt rating agency Fitch Ratings said Tuesday that it doesn't expect any near-term change in China's foreign exchange rate, as a change now wouldn't be in China's interest.

The high ratio of China's investment to its gross domestic product isn't sustainable, James McCormack, a senior director at the agency, said at a seminar in Beijing. The ratio must come down at some point, and as it does, it won't make sense to pressure China's exports with a yuan revaluation, he argued.

China May Retail Sales Rise 12.8%, More Than Expected (Update1)
June 14 (Bloomberg)

-- China's retail sales rose at a faster pace in May, beating expectations, as higher incomes spurred spending on Air China Ltd. flights, Hitachi Ltd. televisions and General Motors Corp. cars.

Sales increased 12.8 percent from a year earlier to 489.9 billion yuan ($59 billion), according to Beijing-based Mainland Marketing Research Co.(China), which releases figures on behalf of the statistics bureau. The median forecast of seven economists surveyed by Bloomberg News was for growth to remain at April's 12.2 percent rate.

Rising consumer spending is helping sustain growth in Asia's second-largest economy as the government restricts investment in industries including real estate and steel to help prevent gluts. Central bank governor Zhou Xiaochuan said June 7 the government, in a bid to boost imports and eliminate the trade surplus, will introduce new policies to spur demand and free up savings.

``Retail sales growth is strong, but the central bank wants it to be stronger because the government wants to boost consumption further if they want to maintain GDP growth while slowing down fixed-asset investment growth,'' said Dariusz Kowalczyk, senior investment strategist at CFC Securities Ltd. in Hong Kong.

Zhou said China's savings ratio -- the proportion of income saved -- was ``pretty high'' at about 38 percent. The ratio in the U.S. was 1 percent last year and that in Japan was about 5 percent, the International Monetary Fund said in its World Economic Outlook, published in April.

Consumers Upbeat

There are signs spending will pick up in China, which, according to a survey released June 9 by ACNielsen, has one of the highest levels of consumer confidence in the world. China was among the five most optimistic nations of the 38 included in the survey and the second most optimistic in the Asia-Pacific region, the market research consultant said.

More than four in 10 of China's 1.3 billion population now lives in towns and cities, a quarter more than a decade ago as farmers have left the land to find better jobs. Average earnings in urban areas have risen 91 percent in the last five years, according to the National Bureau of Statistics.

Urban retail sales rose 14 percent to 332.6 billion yuan in May, while sales in rural areas increased 11 percent to 157.3 billion yuan, today's report showed.

Sliding Stocks

Fewer urban Chinese plan to invest in shares or keep their money in the bank, according to a quarterly survey by the People's Bank of China published June 7. China's Shanghai and Shenzhen composite stock indexes have fallen more than a 10th this year, making them among the five worst performers of 79 global benchmarks monitored by Bloomberg.

Nationwide, restaurant sales surged 20 percent, vehicle sales increased 15 percent and garment sales gained 19 percent, Mainland Marketing said. Sales of gasoline and related products jumped 45 percent and telecommunications equipment sales rose 23 percent.

McDonald's Corp., the world's biggest restaurant chain plans to open its first drive-through location this year in the southern border city of Shenzhen to take advantage of increasing car ownership among the nation's rising middle class, company President Mike Roberts said in May.

Car sales in China, the world's third-largest vehicle market, rose 22 percent in May from a year earlier to 317,400 units, the third month of growth this year after a near year-long slump prompted by buyers holding out for price cuts. GM said it sold a record 247,232 vehicles in the first five months of the year, 12 percent more than the same period last year.

Air China, the nation's biggest carrier, said June 7 it carried 10.4 million passengers in the first five months of the year, 13 percent more than in the same period of last year. An estimated 100 million Chinese citizens will travel abroad every year by 2020, triple the global average, according to the United Nations' World Tourism Organization.

Hitachi Ltd., Japan's largest electronics maker, said June 2 it is increasing production of plasma televisions to 10,000 units a month from 1,000 units as demand increases in the run-up to the Beijing Olympic Games in 2008.



To contact the reporter for this story:
Nerys Avery in Beijing at navery1@bloomberg.net

Last Updated: June 13, 2005 22:30 EDT

More good news for fans of China counters...... :biggrin:

SOUTH CHINA MORNING POST

Tuesday, June 14, 2005

China's central bank cuts inflation forecast as case for rate hike weakens

AGENCE FRANCE-PRESSE in Beijing
Updated at 1.24pm:
The mainland central bank cut its 2005 inflation forecast on Tuesday, one day after data showed consumer price rises hovering at 19-month lows, suggesting an interest rate hike is not an immediate prospect.

The People's Bank of China expects consumer inflation to run at between three and 3.5 percent this year, it said in its annual report published on its website.

This is down from previous central bank forecasts of a four percent rise in consumer prices this year and compares with last year when consumer price inflation reached an eight-year high of 3.9 per cent.

Recent statistics published by the Chinese government suggest a moderation of inflationary pressures, brought about by overcapacity resulting from years of frantic investment in new plant and equipment.

The consumer price index rose 1.8 per cent in May, extending into a second month a drop in the inflation rate to a level not seen since October 2003, the National Bureau of Statistics said Monday.

Zhou Xiaochuan, the central bank governor, said last week that there would be no interest rate hikes in the short term.

In its annual report, the bank said rising oil, raw material prices and labor costs would put upward pressure on consumer prices but food prices, the largest contributor to price growth last year, would ease.