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from Breakingviews:

China’s capital defences have sprung a major leak

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

China’s strict capital controls are designed to shield the economy from flighty foreign money. In practice, they haven’t stopped a tremendous build up of fickle cash from abroad. There’s enough to create a serious nuisance if it starts to flow the other way.

The People’s Bank of China allows money to cross the border for trade or long-term investment, but generally frowns on short-term speculation. Nevertheless, central bank data suggests $725 billion of what might be called “hot money” has piled up since 2008. That’s the combination of short-term funds Chinese residents have borrowed from foreign lenders, and securities they have sold to overseas investors, minus anything that was repaid or sold.

The real quantum of hot money is undoubtedly greater. Some activity that passes as trade is actually cover for transferring speculative capital. Anomalies like the 34 percent increase in exports to Hong Kong in September suggest widespread shenanigans.

from MacroScope:

Of Iraq and Ukraine

Barack Obama’s message that any military support for Iraq’s besieged government is contingent on Prime Minister Nuri al-Maliki taking steps to broaden his Shi'ite-dominated government may be having an impact.

Just hours after Maliki's Shi'ite allies vowed to boycott any cooperation with the biggest Sunni party and his government had accused Sunni neighbour Saudi Arabia of backing "genocide", Maliki broadcast a joint appeal for national unity alongside Sunni critics of his Shi'ite-led government.

from Anatole Kaletsky:

The case against a Chinese financial crisis

A severe slowdown in China is viewed as among the greatest risks facing the world economy this year, and Thursday’s dismal news on Chinese manufacturing output exacerbated these fears. But the really important news from Beijing pointed in the opposite direction: Bank lending in China, instead of slowing dramatically as many economists had expected, accelerated in January to its fastest growth in four years.

This means China is unlikely to act as a brake on the global economy in the months ahead -- despite the recent weak manufacturing figures. It also suggests that predictions of a credit crunch or financial crisis in China will likely prove wrong -- or at least premature.

from Breakingviews:

E-book: China’s mounting debt problem

By Peter Thal Larsen

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

 

The country’s economic rise is built on cheap finance. But with debt nearing 200 percent of GDP and much investment wasted, the foundations are looking shaky. “The East is Red” examines the origins of the boom, the current strains, and the painful choices China now faces.

from Breakingviews:

Lending squeeze tests faith in China’s authorities

By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Forget U.S. talk of monetary “tapering”: to see what it really looks like when liquidity is sucked out of the market, look to China. A standoff between the People’s Bank of China (PBOC) and the country’s overextended lenders has pushed short-term interbank rates to record highs. China’s closed and state-controlled financial system has a better chance of averting the kind of meltdown that took place in the United States and Europe during the financial crisis. But everything hinges on the authorities’ ability to react quickly and decisively.

from Breakingviews:

China FX swap may blur Bank of England mandate

By Peter Thal Larsen

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

The Bank of England is discovering the downside of being the City of London’s chief watchdog. The central bank is under pressure from financial institutions to set up a currency swap with the People’s Bank of China. Such a move would help to boost London as a centre for trading offshore renminbi. However, worrying about the City’s competitiveness also risks blurring the BOE’s main objective of preserving financial stability.

from Breakingviews:

Fed’s approach to monetary policy looks Chinese

By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Here is a fantasy. During a press conference, the chairman of the People’s Bank of China, Zhou Xiaochuan, says: “The need to create jobs should concern everyone in China.” He explains that an undervalued yuan supports exports and a large trade surplus keeps away imports which would take away Chinese jobs. Zhou does not mention any possible international dislocations from this stimulative currency policy.

from Financial Regulatory Forum:

China hints at resumption of yuan appreciation

By Zhou Xin and Jason Subler
BEIJING, Nov 11 (Reuters) - China sent its clearest signal yet that it was ready to allow yuan appreciation after an 18-month hiatus, saying on Wednesday it would consider major currencies, not just the dollar, in guiding the exchange rate.

In its third-quarter monetary policy report, the People's Bank of China departed from well-worn language on keeping the yuan "basically stable at a reasonable and balanced level". It hinted instead at a shift from an effective dollar peg that has been in place since the middle of last year.

"Following the principles of initiative, controllability and gradualism, with reference to international capital flows and changes in major currencies, we will improve the yuan exchange rate formation mechanism," the central bank said in a 46-page monetary policy report.

from Financial Regulatory Forum:

France, China worry about U.S. dollar weakness

By Gertrude Chavez-Dreyfuss and Emmanuel Jarry
NEW YORK/PARIS, Oct 20 (Reuters) - France said on Tuesday the euro at $1.50 was a disaster for Europe and joined China in worrying that a weak U.S. dollar would stoke inflation.

The Bank of Canada also chimed in, saying its currency's strength against the greenback would "more than offset" good news on the Canadian economy. The remarks came after the Canadian central bank held interest rates steady at 0.25 percent and said it would keep rates on hold until mid-2010.

from Financial Regulatory Forum:

China must focus on changes in asset prices-c.bank

FINANCIAL CHINA BANKS   SHANGHAI, Sept 5 (Reuters) - China needs to pay close attention to changes in asset prices and to push ahead on innovations in financial tools in the next phase of development, People's Bank of China Vice Governor Su Ning said on Saturday.
   Su told a banking seminar that innovations in financial tools would be in order to adjust banks' loans growth, but he did not elaborate on the market's present situation.
   "We must pay close attention to asset price changes and monitor global capital flows," he said. "We must study how to use regulatory tools to adjust the lending activities of banks."
   Seeking to head off asset bubbles and a rise in bad debt, Beijing has leaned on banks to slow the pace of lending after a record burst to start the year and has also drafted rules to tighten capital requirements.
   China's housing market began to rebound in March with prices surging in major cities, prompting concerns that a fresh asset bubble was taking shape.
   China has to address risks arising from complex financial shareholdings of companies, Su noted, such as banks holding assets in funds and insurance companies, and to establish a prompt response so as to avoid another financial crisis. (Reporting by Langi Chiang and Jacqueline Wong; Editing by Alex Richardson)
 ((jacqueline.wong@thomsonreuters.com +86 21 6104 1791; Reuters Messaging; jacqueline.wong@thomsonreuters.com)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))
Keywords: CHINA ECONOMY/SU 
  
Saturday, 05 September 2009 05:01:30RTRS [nSHA374220] {C}ENDS

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