Friday, May 18, 2007

Bubble Pressures

Asia's richest man yesterday warned of a bubble in China's stock market, a sentiment also echoed by the People's Bank of China Governor. "China's government increased the amount its currency can appreciate, raised interest rates and curbed bank loans in an effort to tame a runaway economy and ease trade tensions with the U.S. and Europe." Though seen as some by merely a move to please tough-guy Treasury Secretary Henry Paulson before his visit/meeting next week. Starting Monday it will allow the yuan to rise or fall by a whopping 0.5% against the dollar each day, compared to a 0.3 percent margin previously. Not enough for Congress though, which has been threatening trade restrictions on China forever, trying to get the yuan to trade with less restraint. Many believe that China's artificially low currency value makes American manufacturers unable to compete with a rising flood of cheap imported Chinese consumer goods. While others (such as Zhou Xiao-chuan, governor of the People’s Bank of China) see their pace on Yuan valuation as acceptable. In a Wall Street Journal article he has said: “We don’t accept the concept of currency manipulation. It’s not a clearly defined economic concept.”
The CSI 300 Index of stocks has soared 85% this year.
"The government can't just sit there and do nothing as deposits leave the banking system,'' said Dong Tao, chief Asia economist at Credit Suisse Group in Hong Kong. "If the hike can slow money flows into the stock market, that could provide less ammunition for speculators.''
"This is the single biggest move yet on the part of the Chinese government to calm the stock market and address fundamental problems in its economy,'' said Tomo Kinoshita, chief economist for Asia ex-Japan at Nomura International Hong Kong Ltd. "The signal is unmistakable: the government wants to stop the stock market exuberance and stem excess liquidity.''
"The nation's trade surplus, which ballooned 74 percent last year to a record $177.5 billion, drove the country's foreign- exchange reserves to an all-time-high of $1.2 trillion, making it difficult for the government to slow growth."
"China's economy expanded 11.1 percent in the three months ended March 31, exceeding 10 percent for a fifth quarter."

No comments: