The guru speaks

Back at the beginning of 2005, when the world was in feverish uncertainty over a possible revaluation of the Chinese currency, China Eye’s black market money-changing friend in Shanghai, Mr. Chaw Piaw, predicted correctly the timing of the revaluation but declined to name the rate.

This time, he has switched his approach. Asked about a German news report predicting a sudden revaluation of the renminbi to 7.5 to the US dollar on January 1, he said: "No, it will go up, but not that far."

"How far, then?"

"It will be 7.7 or 7.8."

And the timing" I asked, breath bated.

"That," he replied, "I don’t know."

So the master has spoken, and if the gods are with us, the Beijing authorities will not have proven him wrong by the time you read this. There is a chance they will have proven him right.

The authorities are definitely under immense pressure to readjust the rate of the renminbi to help rein in the trade surplus and the foreign exchange reserves. And the real cash rate for the currency, officially fixed somewhere around 8.06 at the time of writing, is now wavering just below 8.0.

The sudden and psychologically significant shift from 8.3 to 8.1 in mid-2005, combined with the gradual creep of the renminbi up beyond that point in daily trading on the official forex market, have now put China in a position it has not been in before – one where a significant shift in the renminbi rate is now possible. But, as discussed last month, the Chinese authorities still prefer gradualism whenever they can get away with it. And a shift from 8.0 to 7.8 sometime early in 2006 could probably be classified as a gradualist move.

I await Mr. Chaw Piaw’s next visit.

Big developments in Taiwan and Hong Kong, which in different ways are likely to have a significant impact on the future development of the mainland’s political system, directly, or more likely indirectly. The defeat of the DPP in Taiwan’s local elections in early December – and the victory of the opposition KMT – is a marker pointing toward the end of the DPP era in Taiwan politics. The time for Chen Shui-bian’s approach has passed, and the realities of China ascendant make a KMT victory in 2008 more and more probable.

The KMT, paradoxically, is an organization with which the Communist Party can work, and a gradual shift in the relationship between the two sides towards some kind of detente looks likely after 2008, assuming a KMT victory in the presidential elections set for that year.

But – also paradoxically – a victorious KMT in Taiwan will also have a slow-burn impact on mainland politics, strengthening long-term questions about whether a single party system is really the most efficient means of arranging China’s affairs.

A couple of people in Shanghai have commented to me that a detente with a KMT-ruled Taiwan should be followed by permission for the KMT to once more participate in mainland politics as well. Wow.

In Hong Kong, meanwhile, a march in early December in favor of universal suffrage also has implications for the mainland. The chief administrator of the territory, Mr. Bow Tie Tsang, again at the time of writing, was cautioning Hong Kong people to get real and accept the realities of what is possible rather than push for an impossible ideal.

Which way the people of Hong Kong go on this will have an impact somehow, in some way and at some time in the future, on affairs across the border to the north.

China buzz
Zhang Zuoyi, governor of Heilongjiang province, on the contaminated Songhua River: "I will drink the first glass of water once supplies are resumed."

US President George W Bush, speaking outside a Protestant church in Beijing: "My hope is that the government of China will not fear Christians who gather to worship openly. A healthy society is a society that welcomes all faiths."

Virgin Group founder Richard Branson: "For any business these days, it is madness to not be involved in China."

People’s Bank of China president Zhou Xiaochuan: "If the trade surplus can be reduced, next year there will not be increased pressure to revalue the renminbi."

US Securities and Exchange Commission chairman Christopher Cox, speaking at Tsinghua University in Beijing: "Eliminating restrictions on access to material information is essential for the success of Chinese issuers and markets, and for the protection of investors. We’ve got to work together to address this challenge, lest we all find ourselves facing the same destiny as the Qing."

Finance Minister Jin Renqing, quoted by the media at the London meeting of G7 finance ministers in December: "China’s economic growth will present a chance for the world and contribute to world peace."

Foreign Ministry spokesman Liu Jianchao, at the Kuala Lumpur summit of East Asian leaders where PRC Premier Wen Jiabao and Japanese Prime Minister Junichiro Koizumi shook hands: "Everybody saw clearly what happened at the meeting place, but China’s attitude toward the question of history between China and Japan has not changed."

Siemens China president Richard Hausmann, announcing that the company had met its target of growing at about twice the pace of GDP: "Our growth is very much balanced and sustainable, because it is based on the need for infrastructure in China."