China revaluation imminent?

Discussion in 'Forex' started by mtzianos, Jul 15, 2005.

  1. I know this is like the story of the boy who cried wolf... but anyway

    China says it has no timetable for any yuan move
    16 July 2005

    BEIJING: The administration of president George W Bush has told key senators that it expects China to revalue the yuan in August before president Hu Jintao visits Washington in September, the Financial Times reported yesterday.

    A spokesman for the State Administration of Foreign Exchange, China's currency regulator, restated Beijing's long-held stance that there was no timetable for a possible change in the yuan's peg of near 8.28 per dollar.

    A spokesman for the People's Bank of China, the central bank, declined to comment on the report.

    The Financial Times, quoting unnamed people familiar with the matter, said Treasury Secretary John Snow had named August as the likely date for a change at a meeting last month with senators Charles Schumer and Lindsey Graham, co-sponsors of a bill that would impose a 27.5 per cent tariff on Chinese imports.

    The two said at the time they had agreed to postpone a hearing on their bill after receiving assurances from Snow and Federal Reserve Chairman Alan Greenspan that a change in China's currency regime was imminent.

    "Senator Graham and I believe that the administration is convinced that China will begin a revaluation process this summer, forced by our bill's success in the Senate," Schumer told the Financial Times.

    Premiums on offshore yuan non-deliverable forwards, derivatives used to speculate on the currency, rose to two-month highs following the FT article. Three-month NDFs priced the yuan nearly 2 per cent higher at 8.12 per dollar.

    AdvertisementAdvertisementBeijing, while resisting foreign pressure to revalue, has long promised to make the currency more flexible through gradual reforms, but says it must first strengthen its financial system and ensure its economy is stable.

    Many economists agree the run-up to Hu's US visit provides a window of opportunity to widen the yuan's trading band.

    "I am quite persuaded that something might happen perhaps as early as August before the US Congress returns," said Uwe Parpart of Bank of America in Hong Kong.

    Snow's spokesman, Tony Fratto, told the Financial Times his boss had not been specific. "Secretary Snow did not provide an assurance on a specific timeframe for when China would reform its currency regime. Targeting a specific date or timeframe is counter-productive," the paper quoted Fratto as saying.

    "That said, it is clear that China is prepared to move now. It would be in the best interests of China, and the global financial system, if these reforms came sooner rather than later," Fratto added.

    Snow himself said on Thursday he was unsure when China would allow the yuan to move more freely.

    "We think they should move as soon as possible but I have no prediction on when that might happen," Snow told CNBC television.
  2. dont


    Know of any websites that give quotes on the NDF on the Yuan?
  3. No----not imminent. All words with never any actions!
  4. Digs


    This would make china goods more expensive to USA and the world, thus USA consumers would have to buy more from other cheap countries or even local produces, the net hopeful effect is a reduction in the USA to China trade imbalance.

    USD should rally..dunno, am i right or wrong
  5. Here is one good source in English, updated daily, from Industrial and Commercial Bank of China, the country's biggest bank:
    Date: 2005-07-15          100 UNITS OF FOREIGN CURRENCIES
    Mid Foreign Exchange Value Day
    Bid Offer
    7D 827.19 825.13 829.26
    20D 826.26 824.19 828.32 2005-08-08
    1M 825.57 823.51 827.63 2005-08-18
    2M 823.29 821.23 825.35 2005-09-19
    3M 821.11 819.06 823.16 2005-10-18
    4M 818.73 816.68 820.78 2005-11-18
    5M 816.28 814.24 818.32 2005-12-19
    6M 813.82 811.78 815.85 2006-01-18
    7M 811.17 808.94 813.4 2006-02-20
    8M 808.89 806.47 811.32 2006-03-20
    9M 806.51 803.89 809.13 2006-04-18
    10M 804.08 801.27 806.9 2006-05-18
    11M 801.5 798.49 804.5 2006-06-19
    1Y 799.13 795.93 802.32 2006-07-18

    It also provides the (virtually fixed) spot USD/CNY rates and past history for both spot and forwards -- links on the left. Incidentally, CNY (Chinese Yuan) and RMB (Renminbi) are one and the same; cf. Sterling and Pound... not to mention cable, whatever the origin of that is.

    Note that the USD/CNY NDFs trade in Hong Kong on the OTC market, so you'll find some variation among dealers. The key variable to watch over time is a given dealer's (such as ICBC) forward premiums over spot, as expressed by the shape of the 1-year NDF curve. Not entirely unlike the Fed Funds futures curve, implying probabilities of a 25 or 50 bp rate move at scheduled FOMC meetings.

    And here's a good description, with Yuan NDF examples, of the mechanics of non-deliverable forward contracts:

    EDIT: Due to ET's links policy, PM me for the exact link if you want it.
  6. Hayek


    The quotes here are DF, not NDF.
  7. can hardly think china would want to kill the goose that's laying golden eggs all over their economy...
  8. you are wrong and so is 75% of congress that thinks a yuan revaluation will be a magic bullet for fixing our economy. alan greenspan and john snow have said it will not do anything significant for our economy. are you going to believe them or some dumbass senator from kentucky or the fed reserve chairman and the treasury secretary?

    the USA/China trade imbalance number is a flawed number. it is a gross number and not a net number. the vast majority of chinese made goods are for american companies. for example, the usa imports $1 billion in chinese made goods (but for american companies) but american retailers like GAP or NIKE go on to sell those goods for $100 billion in gross profit. the trade imbalance number does not take into account the end consumer and where the profits go (the other $99 billion). if the yuan appreciates versus the dollar, the cost of goods for american clothing brands will rise and their profits will fall.

    thus, either american retailers will be forced to:

    a.) build new factories and train new workers in other labor intensive countries like vietnam or pakistan.

    b.) pass the additional costs onto the american consumer like you and i.

    why would the USD rally? congress wants the yuan to float so that it appreciates versus the value of the USD.
  9. the retailer gross proportions are nowhere near that high, I think, but good point.
  10. it was an example but the cost of goods versus the retail price is indeed very high.

    remember those pokemon keychains with the poke ball and the pokemon inside that were all the rage 7-8 years ago?

    i know the ppl who helped manufacture them and the factory billed the US company 7-8 cents per unit, who then in turn sold them to walmart/toysrus for about $1.10-$1.25 who then in turn sold them to the american consumer for like $3-$4 each.

    where is the trade deficit there? who is getting rich off the expense of american jobs? the chinese sweatshop worker who makes $1-$2 per day or the american company execs who make several million per year?
    #10     Jul 16, 2005