China News & Views: Deutsche Consult's FREE strictly-business monthly
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China News & Views: Deutsche Consult's FREE strictly-business monthly with well over 11,0000 readers the world over. To subscribe or browse through our archives, just go to our website, which we are unfortunately not allowed to mention here. Should you have difficulties finding it, just search in Google for "Deutsche Consult (Asia) Ltd. "
Below please find our 3/06 edition as an "appetizer":
In the wake of Chinese President Hu Jintaos US visit Premier Wen Jiabao publicly rules out any surprise move on the yuan.
"There won't be another one-off appreciation or depreciation or any surprise moves, " he said during a press conference at the close of the National People's Congress; thus somewhat reassuring Chinas exporters who, in the face of fierce competition at home and abroad and not exactly booming markets in the West, already find it hard to pass-on ever increasing prices for raw materials.
Although the latter (where USD based) would become cheaper through a stronger yuan, electricity, water, etc. , etc, -and above all wages(!) - are to be paid in local currency: As the yuan rises, all those labour intensive products in particular thus risk their competitive edge; resulting in even more unemployment (see China News & Views 2/06) and potential for much feared unrest.
International speculators on the other hand, seem now in for a disappointment: Relying on Washingtons battle cries that the Chinese currency is 20, 30 or 40 per cent undervalued and to be adjusted accordingly, they hoped for a feeding frenzy and in the absence of other ways to get their hands on yuan- bought heavily into real estate in Beijing and Shanghai; further bloating property prices in those cities to what could now be dangerous levels: Hot money is fidgety the world over, and where quick profit proves unachievable, it swiftly withdraws. Any sudden selling pressure on the said real estate markets, however, could easily burst the bubble and leave blood on the floor!
What Premier Wen has explicitly not ruled out is a further widening of the band-width, in which the yuan is allowed to move against the USD. Even the most optimistic in the finance industry, however, now predict a yuan/USD exchange rate of at best 7.8 to 1. - by year-end; an increase of just 3 per cent from the present 8.03 and light-years behind Washingtons demands in any event
With best regards
Your DEUTSCHE CONSULT Team