Reply #4: A bit more on the China bubble/floating yuan [View All]

[54anickel]

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1077690749849

China to ease upward pressure on renminbi

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Economists estimate that roughly $50bn in "hot money" inflows found their way into China last year, pushing domestic money supply to record levels and fuelling inflationary pressures. The hot money largely represents funds brought back to China by local businessmen or overseas Chinese to benefit from a predicted renminbi appreciation.

But Mr Guo made it clear that the People's Bank of China, central bank, has no intention to cave in before the will of speculators. He said Chinese firms would be able to retain more foreign currency and outward investment by Chinese would be encouraged - both measures to ease upward pressure on the renminbi. Inflows remained strong in January, with the foreign currency reserves rising to nearly $416bn, up from $403bn at the end of 2003.

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Chinese companies would therefore be allowed in the first quarter of this year to retain more of their hard currency earnings, thereby reducing pressures on the renminbi money supply. Currently, the central bank buys all but a small portion of hard currency earned by exporters and repays them in renminbi.

The government was also studying the Qualified Domestic Institutional Investor (QDII) scheme, under which mainland Chinese would be allowed to invest in overseas stock markets through selected institutions - another step that would require the selling of renminbi and buying of US dollars. QDII would be implemented when the "conditions are mature".

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