----- Original Message -----
From: Gold Anti-Trust Action Committee
To: [EMAIL PROTECTED]
Sent: Monday, April 16, 2007 10:37 PM
Subject: [GATA] China moves to explain $136 billion FX surge
China moves to explain $136 billion FX surge
Submitted by cpowell on 08:37PM ET Monday, April 16, 2007. Section: Daily
Dispatches
By Richard McGregor
Financial Times, London
Monday, April 16, 2007
http://www.ft.com/cms/s/bdb510e8-ebe8-11db-a12e-000b5df10621.html
BEIJING -- China has taken the unusual step of trying to explain the recent
surge in its foreign exchange reserves after they rose by the equivalent of $1
million a minute in the first quarter of this year, or by more than half the
total increase of 2006.
The explanation on Monday by Wu Xiaoling, a deputy governor of the People's
Bank of China, prompted a number of analysts to firm up their expectations that
the central bank would introduce further monetary tightening measures.
Economists also expect first-quarter economic growth figures, due to be
released on Thursday, to put more pressure on the PBoC. Goldman Sachs, in a
note to investors, on Monday said it expected gross domestic product growth for
the first quarter of 2007 to accelerate to 11.2 percent, up from 10.4 percent
in the final three months of last year.
China has already increased six times in less than a year the amount it
requires commercial banks to keep on deposit with the authorities, to control
liquidity in the financial system. It has increased interest rates three times
during the same period.
Beijing supports fast growth but has been increasingly worried about the
political, environmental, and structural economic impact of the current model,
which is driven by high net exports and energy-intensive heavy industry.
Speaking at a seminar in Guangzhou, southern China, on Sunday, Ms. Wu said the
first-quarter rise in foreign exchange reserves of $135.7 billion (100 billion
euroes, £68 billion) to $1,202 billion was caused by a number of factors
beyond the sharp rise in the trade surplus, which had already been made public.
Ms. Wu said the unwinding of swap agreements between the central banks and
Chinese commercial lenders had resulted in foreign exchange coming back on to
the PBoC's books.
Some of the funds raised in huge offshore initial public offerings by Chinese
banks and other enterprises had also been brought back onshore, driven by the
desire to take advantage of the rising renminbi.
"Recently, due to an expectation of the [continued] revaluation of renminbi,
these enterprises have rushed to settle their foreign exchange holdings through
various arrangements and bring [the funds] back onshore," she said.
Four of China's five large state banks have raised $42 billion in offshore IPOs
in the past 22 months, with Industrial and Commercial Bank of China alone
raising a world record $21.9 billion last October.
Ms. Wu's explanation seems designed to kill off any suggestions that the
increase in reserves was due to a renewed surge in inflows of speculative "hot
money" out of the control of the authorities.
Stephen Green of Standard Chartered bank in Shanghai cited a number of other
factors responsible for higher reserves, notably interest earned on existing
holdings and the impact of currency revaluations on its portfolio of currencies.
It is not clear why the PBoC decided to unwind the swaps with the commercial
banks but they may have done so under pressure from the lenders, who thought
the money could be used more profitably at home.
Mr. Green also speculated that the PBoC wanted to bring all outstanding funds
back onshore ahead of the establishment of the proposed new body to manage a
portion of the reserves and secure higher returns.
* * *
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