Thread: China's yuan strengthens after US anger

China's yuan strengthens after US anger
AFP - Saturday, September 18
http://sg.news.yahoo.com/afp/2010091...n-ec2362a.html

BEIJING (AFP) - – China's yuan rose slightly against the dollar on Friday after a blunt call from US Treasury Secretary Timothy Geithner for Beijing to attack trade distortions by letting the currency strengthen.

The yuan reversed earlier losses to close at 6.7235 to the dollar, marginally higher than its close on Thursday of 6.7248, Dow Jones Newswires reported.

"The central parity was certainly higher than expected and so demand for the dollar rose this morning," said a Shanghai-based trader at an Asian bank.

"Our take is that the dollar-yuan may be nearing a significant rebound. The US Congressional hearing is over and we don't think the yuan will continue to appreciate sharply in the near term."

Gains in the currency came after the People's Bank of China set the central parity rate -- the middle of the unit's allowed trading band -- at 6.7172.

It was the strongest level since Beijing pledged in June to loosen its grip on the yuan.

"The central parity today extended the recent trend of yuan appreciation," a Shenzhen-based trader with a Chinese bank told AFP.

"The yuan weakened a bit during trade, which indicated the yuan is inclined to take a breath following the recent fast rise."

In the run-up to crucial midterm elections in November, US lawmakers are weighing bills that would slap sanctions on Chinese goods amid accusations that Beijing keeps its currency -- and thereby its exports -- artificially cheap.

Geithner, testifying in Congress on Thursday, abandoned his previous restraint on the issue, saying it was "past time for China to move" on the yuan and lift trade barriers.

Despite June's "important" pledge by Beijing, Geithner said the Chinese currency's value was "essentially" unchanged in the past two years because of "very substantial" intervention by the authorities.

Since June the yuan has appreciated about 1.6 percent against the greenback and gained about 0.7 percent this week ahead of Geithner's testimony.

But Geithner also tried to put the currency dispute in the context of a wider, mutually beneficial trade relationship between the United States and Asia's rising power.

There was no immediate response from Beijing to Geithner's remarks.

On Thursday, China's foreign ministry spokeswoman Jiang Yu warned that outside pressure on Beijing to change its currency regime would not work.

"The appreciation of the renminbi cannot solve the US trade deficit against China and it cannot solve the US domestic unemployment issue," Jiang told reporters.

"The issues in China and US economic relations and trade should be properly solved through consultations on an equal footing. Exerting pressure cannot solve the issue. Rather, it may lead to the contrary."

Standard Chartered 'may move HQ to Far East'
AFP - Saturday, September 18
http://sg.news.yahoo.com/afp/2010091...y-e65dddb.html

LONDON (AFP) - – Standard Chartered bank has stepped up plans for possible relocation to the Far East where it does most of its business, as it bids to escape tighter regulations in Britain, a report said on Friday.

The Times wrote that the Britain-based bank had "discussed the issue in depth at several meetings and has a team working on the feasibility of a move to the Far East or elsewhere."

Standard's chief executive Peter Sands recently said the bank's "preferred solution" was to stay in London but added that it would seriously consider moving if it was "hopelessly disadvantaged," the paper added.

Britain's coalition government is looking at toughtening banking regulations in the wake of the financial crisis but has been warned by the sector that such moves could hike lenders' costs, forcing them to relocate abroad.

A spokesman for Standard Chartered downplayed the report in The Times.

Relocation "is something we do look at but we have no plans to move," he told AFP.

China Checking Out GM
http://www.cnbc.com/id/15840232?video=1593980217&play=1

Airtime: Fri. Sept. 17 2010 | light e) ET
CNBC's Phil LeBeau reports that China's SAIC has informally approached GM about getting in on its IPO later this year. The company is said to have a 13-year relationship with GM.

Dell's Expansion Into China
http://www.cnbc.com/id/15840232?video=1592507863&play=1

Airtime: Wed. Sept. 15 2010 | light e) ET
As Dell continues its expansion into China's Western region, Amit Midha, president of Dell, China, tells CNBC's Chloe Cho how it is dealing with rising wages and a strengthening yuan.

China ire at sea chase signals wider reach
By Peter J Brown
http://www.atimes.com/atimes/China/LI16Ad02.html
Beijing's reaction to the incident in the East China Sea involving a Chinese fishing boat and the Japanese Coast Guard seems overblown, given all available evidence. Yet it signals that Beijing may be preparing to extend the focus of its expression of core maritime interests to beyond the South China Sea. - Peter J Brown (Sep 15, '10)

Wen rebuffs foreigners' 'unfair treatment' woes
By Olivia Chung
http://www.atimes.com/atimes/China_B.../LI16Cb02.html
Chinese Premier Wen Jiabao insists that overseas companies operating in the country are given equal treatment with local outfits when government procurement is involved. If foreign operators disagree, says one of his ministers, even "after having a good meal, one still blames the cook". - Olivia Chung (Sep 15, '10)

China Sets Yuan Daily Reference Rate Stronger Than 6.7 to Dollar
http://www.businessweek.com/news/201...to-dollar.html

Sept. 21 (Bloomberg) -- China’s central bank set the yuan’s daily reference rate stronger than 6.7 per dollar for the first time since July 2005 after President Barack Obama criticized China for its currency policy.

The reference rate was set at 6.6997 per dollar. The currency is allowed to trade up to 0.5 percent either side of the fixing rate.

China’s leaders haven’t done “everything they said would be done” to allow the nation’s currency to rise in value, Obama said, echoing the views expressed by administration officials and lawmakers at congressional hearings last week. “What we’ve said to them is you need to let your currency rise,” he said in an hour-long town hall discussion in Washington.

To contact the reporter on this story: Judy Chen in Shanghai at [email protected]

China Won't Let Yuan Rise Soon in Poll Signaling No. 1 Economy
http://www.bloomberg.com/news/2010-0...1-economy.html

Most global investors expect China to become the world’s biggest economy over the next two decades, and they are divided over whether that will help or hurt the economies of other industrialized countries.

There’s also a strong consensus that China won’t move very aggressively to increase the value of its currency by the end of next year, according to a global quarterly poll of 1,408 investors, analysts and traders who are Bloomberg subscribers. Almost seven in 10 expect China to revalue the yuan by a few percent or less against the dollar, rather than a surge like the yuan’s roughly 20 percent rise between 2005 and 2008.

While the largest percentage of those surveyed say China’s economic growth will provide a bigger market for exports from other nations, some investors worry that China’s ascendance will hurt labor markets in competing nations, and one-quarter of respondents expect a stronger China will push up oil and agriculture prices.

“If China becomes the biggest economy, it will result in higher commodity prices because the country needs more resources for their output, plus the population will have higher earnings,” said Erik Bakker, an asset manager for OHV Asset Management in the Netherlands.

Bullish on China

More than half of respondents in the Bloomberg Global Poll say they are bullish about China’s prospects for long-term investments, in contrast to about a third of investors who take a bearish view. They split more evenly over how China’s ascent will affect other major economies.

European investors were the most optimistic, with 60 percent of respondents from that region saying they were bullish on China as a long-term investment opportunity, compared to 53 percent in the U.S. and 56 percent in Asia. Likewise, just 28 percent of European investors say they are bearish, compared to 36 percent in the U.S. and 34 percent in Asia.

China overtook Japan in the second quarter as the world’s second-largest economy, and it is the second largest U.S. trading partner. Along with Brazil, China led the list of most attractive investment locations in the survey, with 33 percent of investors citing it as the country with the best opportunities over the next year.

‘Excellent Venue’

“The more important aspect of China’s growth, and the reason for my bullishness, is that this provides an excellent venue for direct foreign investment into China by U.S. companies,” said Will Aston-Reese, vice president for money- market sales at Tradition Asiel Securities Inc., in New York. “In essence, we’re exporting investments and, hopefully, importing profits.”

Investors see China’s prospects as better than those of its neighbor, Japan, which 30 percent of respondents cite as the worst place to invest over the next year. At the same time, many expect that Japan’s efforts to weaken its currency won’t bear much fruit.

Four out of 10 investors expect the yen to appreciate against the dollar in the next year, even though Japan intervened last week in the currency markets for the first time since 2004. About a quarter of respondents expect the yen to remain about the same against the dollar, and another 25 percent predict some depreciation.

The quarterly Bloomberg Global Poll is based on interviews Sept. 16-17 with a random sample of 1,408 Bloomberg subscribers. The survey, taken by Des Moines, Iowa-based Selzer & Co., has a margin of error of plus or minus 2.6 percentage points.

Trade Tensions

Tensions over China’s exchange rate and tightly controlled economy raise concerns that the Asian nation may not live up to its promise. Earlier this month, the U.S. filed a pair of trade complaints against China over payment services and steel exports. The Obama administration also is stepping up pressure on Beijing to let the yuan appreciate more than the 1.8 percent it has gained since a June decision to drop the yuan’s peg to the dollar.

“In the short run, I’m incredibly bearish,” said Scott Frew, a general partner at Rockingham Capital Partners in Glastonbury, Connecticut. “China’s property market is a bubble without question, and one that must eventually burst.”

Almost two-thirds of investors say there is a bubble in Chinese property markets, with one in five investors disagreeing.

‘Tons of Bad Loans’

“China’s banks are sitting with tons of bad loans; that will eventually have to be recognized and dealt with,” Frew said. “And lastly, China’s reaction to the slowdown in 2008, vastly increasing fixed investment, was brutally bad policy.”

These concerns don’t appear to dampen China’s prospects for growth. Most respondents expect China will become the world’s largest economy, with 26 percent predicting its ascent in the next 10 years and an additional 38 percent seeing such growth within two decades.

“China could be bigger than the U.S.A. in 20 years,” said Mario Di Marcantonio, a senior global portfolio manager at Eurizon Capital in Milan. “The Chinese economy has driven the big expansion of the cities -- now the rural parts of China need to grow as well.”

Peter Thiel Warns Of Coming Malthusian Resource Struggle With China
http://www.businessinsider.com/peter...h-china-2010-9

Hedge fund manager Peter Thiel was on Bloomberg today. Here's a choice quote:
“Well I think people are too focused on whether we’re in a U shaped recovery, a V shaped recovery, an L shaped recovery – people are too focused on the question on what’s going to happen in the next 6 months. The question for the U.S., Western Europe and the developed world is really what’s going to happens over the next 20 years. Are things going to be better in the next 20 years than they are today?

And I think that in long run, the short run becomes the long run. We’re sort of at a point where short run thinking has run out of time in the U.S. So it’s not a question of can patch things up in another year with another stimulus, bail out the banks or anything like that, it’s actually how do you get things in better shape over the next 20 years. The only answer for the develop world is technology and innovation. We can’t compete with China on labor cost, this is not an option. Globalization without technology means just an increasingly Malthusian struggle for resources. So that’s why I think the question about technology is so important and critical for the U.S.”

Given all the talk about China hoarding rare earths this is a particularly important question today.

China Is Blocking Minerals, Executives Say
http://www.cnbc.com/id/39342211

China’s Commerce Ministry denied on Thursday that it had halted exports to Japan of a crucial category of minerals, but industry executives said that factories in China were still not shipping to Japan after Chinese customs agents blocked shipments earlier this week.

The minerals are so-called rare earths, which are used in products like wind turbines and hybrid cars.

Eight executives, analysts and traders in the Chinese, Japanese and North American rare earths industries said that China had suspended the shipments on Tuesday in response to a diplomatic dispute over Japan’s detention of a Chinese fishing trawler captain. Some theorized that the action might have been taken by Chinese customs agents, rather than as a formal trade embargo imposed by commerce ministry regulations, to give Beijing more negotiating room with Japan.

Akihiro Ohata, Japan’s trade minister, said on Friday that China’s commerce ministry had informed Japan that it had not issued a ban on rare earths exports. But Mr. Ohata also said the ministry was aware that Japanese traders were complaining of a halt in rare earth shipments from China, and that the government was investigating the matter further.

Gary L. Billingsley, executive chairman of the Great Western Minerals Group, a Canadian company with rare earth processing factories in Michigan and Britain, said China appeared to have stopped shipping rare earths to Japan on Tuesday.

Japanese traders “confirm that there has been a disruption in the supply of rare earths,” Mr. Billingsley said. Shipments loaded before Tuesday have continued to arrive at Japanese ports, he said, adding that Great Western had not experienced any disruption because it bought supplies directly from China.

China mines 93 percent of the world’s rare earth minerals and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.

A Toyota [TM 73.06 2.09 (+2.94%) ] supplier in Japan, who spoke on condition of anonymity, said that the automaker had alerted his company on Monday of a possible halt in rare earth shipments. “Toyota is already seeing shipments being stopped,” the supplier said.

A Toyota spokesman, Paul Nolasco, had no immediate comment.

Industry executives, analysts and two Japanese traders confirmed that rare earths bound for Japan stopped leaving Chinese ports on Tuesday. China has export quotas for rare earths, but even factories with ample quotas for further exports had been dissuaded from making shipments, they said.

“People are mystified why the Chinese don’t acknowledge it,” said Dudley Kingsnorth, the executive director of the Industrial Minerals Company of Australia, a rare earth consulting company.

An official at one of Japan’s top traders in rare earths, who spoke on condition of anonymity, said Chinese customs officials had blocked the rare earth shipments on Tuesday. But because Beijing offices, including customs headquarters, closed Wednesday through Friday for the Chinese Autumn Equinox holiday, and will reopen on Saturday, industry players were still unsure whether the halt in exports was the start of a longer embargo.

Trucking, ports and local customs offices continue to operate during weekends and holidays. But Chinese rare earths operations have halted shipments to Japan for the last three days anyway in response to strong warnings on Tuesday from Beijing officials against selling to Japan, industry executives said.

A person answering the phones at the customs headquarters in Beijing said no one would be available for comment until Saturday.

If China continued to halt shipments, it would be extremely difficult to switch to other sources, the Japanese trader said.

Rare earths are used in a wide variety of industrial applications, including the manufacture of glass, batteries, catalytic converters, compact fluorescent bulbs and computer display screens. Demand has surged in the last decade for clean energy applications, like generators for large wind turbines and lightweight electric motors for cars.

Japanese automakers in particular have been turning to rare earths for the electric motors used in power steering in gasoline-powered cars, as well as the more powerful electric motors that help propel gasoline-electric hybrids like the Prius.

Some industry analysts predicted on Thursday that the Chinese government would relent soon and allow a resumption of rare earth exports to Japan, having made the point that China had considerable economic leverage over Japan these days.

“This is politics. In my view, it won’t last,” said Judith Chegwidden, a managing director of the Roskill Consulting Group in London.
Ms. Chegwidden said that the way China had selectively blocked the rare earths was significant. The halted shipments involved rare earth oxides, rare earth salts and pure rare earth metals — all of which are carefully tracked by customs officials for compliance with government export quotas.

But shipments of various alloys that include rare earth metals to Japan have continued. . These alloys are not subject to export quotas, so they do not receive special attention from Chinese customs officials, and would be hard to stop even if the Chinese government decided to do so.

“They picked on things for which it’s relatively easy because they’ve got a quota,” Ms. Chegwidden said.

Others in the industry said that having China’s customs agency halt exports of rare earths, without calling it an export ban, carried political and legal advantages. Imposing an unannounced embargo, they said, would allow China to ratchet up the pressure gradually on Japan to release the detained boat captain.

And a halt in exports carried out through administrative measures, rather than as an act of official policy, would be much harder for Japan to challenge at the World Trade Organization, which bans most unilateral export restrictions. Under W.T.O. rules, countries may formally suspend exports of natural resources only for environmental conservation.