It has to be a tough call for them, but probably Bush, on the "devil you know" theory. What could the Chinese do to help the Republican / Bush election campaign along? How about a small "present" of a currency revaluation somewhere in the middle of the year?
The issue of a revaluation remains a tough one for Beijing and it would appear there are differences of opinion amongst the relevant official organs in Beijing about what to do and when. The pressures for a revaluation are clearly there, both internal and external, but the indications, such as they are, would suggest that any rate shift will not occur in the immediate future (famous last words). One indicator worth watching is the "free" market rate, which is still around where it was six months ago – 8.1 to the dollar. That supports a "no immediate change" scenario.
Major decisions of macro economic policy – exchange rate changes, stock market reforms, state share disbursement etc – are not made in isolation. They are inter-linked. For instance, one reason for the slowdown in the QFII process, through which foreign investment funds will be channeled into the A-share markets, is that the authorities are concerned that investors will pump money in to take advantage of an expected renminbi revaluation. Which points to any revaluation preceding QFII progress.
Premier Wen made it clear at the NPC that state bank listings is a top priority. One reason appears to be official exasperation at their slow pace in improving the quality of the banks' loan books. The answer: turn on the spotlight of scrutiny from investors and shareholders. But how will funds raised be used? Using them to offset bad loans would hardly be in the interests of shareholders. So one possibility being discussed is that the banks would move the bad loans off their books into independent vehicles until after listing, then shift them back in afterwards. This is called "parking assets," and it typically attracts much negative scrutiny from market regulators elsewhere. Watch this space.
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