Posted on 01/05/2003 3:25:42 PM PST by maui_hawaii
Zhu Rongji says keeping to current policy is in country's interests and will help safeguard economic growth and stability
BEIJING - Chinese Premier Zhu Rongji has ruled out devaluing China's currency, saying Beijing's current policy is in the interests of the country, state press reported yesterday.
'To stick to the policy is in the interests of our country,' he said, according to Xinhua news agency.
'It has effectively safeguarded the country's economic growth and financial stability and won wide approval from the international community,' he added.
China received kudos for its refusal to devalue its currency during the Asian financial crisis in the late 1990s, when other countries in the region engaged in competitive devaluations.
The stability of the yuan and 'the sustained increase in foreign exchange reserves are major signs of the country's improving national strength and sustained and healthy economic development', said Mr Zhu, speaking at the State Administration of Foreign Exchange.
His comments came as US Treasury Under-Secretary John Taylor suggested that China's integration into the world economy boosted chances that the world's largest consumer market would end restrictions on its exchange rate over the longer term.
Since 1995, China has kept the yuan in a narrow trading band of around 8.3 against the US dollar, a move that keeps the price of its exports low, helping to fuel a US$199 billion (S$348.5 billion) trade surplus and attracting US$308 billion in foreign investment.
Its economy grew 8 per cent last year, more than three times the United States'.
In Washington, Mr Taylor said large economies that keep inflation tame, interest rates low and allow their currencies to float have the best chance of achieving long periods of stable growth.
'Over time, they will move towards more flexibility,' he said, when asked about China's exchange rate.
'It's really their decision as to how rapidly to move,' he added. -- AFP, Bloomberg News
I think we should protest in the WTO, and in the mean time slap an additional 20% tariff on ALL Chinese products.
We can encourage Mexico and any all others to do the same.
3. Foreign Exchange and Payments
27. Some members of the Working Party raised concerns about China's use of forex controls to regulate the level and composition of trade in goods and services. In response, the representative of China stated that China was now a member of the International Monetary Fund ("IMF") and that recently its system of forex had undergone rapid change. Significant moves had been taken to reform, rationalize and liberalize the forex market. The practice of multiple exchange rates in swap centres had been abolished. China had already unified its forex market and removed many of the restrictions on the use of forex.
28. Outlining the historical development of China's forex reform, the representative of China stated that the purpose of China's forex reform was to reduce administrative intervention and increase the role of market forces. From 1979, a forex retention system was applied in China, although forex swap was gradually developing. In early 1994, official RMB exchange rates were unified with the market rates. The banking exchange system was adopted and a nationwide unified inter-bank forex market was established, with conditional convertibility of the Renminbi on current accounts. Since 1996, foreign invested enterprises ("FIEs") were also permitted into the banking exchange system, and the remaining exchange restrictions on current accounts were eliminated. On 1 December 1996, China had formally accepted the obligations of Article VIII of the IMF's Articles of Agreement, removing exchange restrictions on current account transactions. Accordingly, since then the Renminbi had been fully convertible on current accounts. It was confirmed by the IMF in its Staff Report on Article IV Consultations with China in 2000 that China had no existing forex restrictions for current account transactions.
29. The representative of China stated that the State Administration of Foreign Exchange ("SAFE") was under the auspices of the People's Bank of China ("PBC"), and was the administrative organ empowered to regulate forex. Its main functions were to monitor and advise on balance-of-payments and forex matters. SAFE was also required to draft appropriate regulations and monitor compliance. He further noted that domestic and foreign banks, and financial institutions could engage in forex business, with the approval of the PBC.
30. In response to requests from members of the Working Party for further information, the representative of China added that for forex payments under current accounts, domestic entities (including FIEs) could purchase forex at market exchange rates from designated banks or debit their forex accounts directly upon presentation of valid documents. For payments such as pre-payment, commission, etc., exceeding the proportion or limit, the entities could also purchase forex from the banks upon meeting the bona fide test administered by SAFE. Forex for personal use by individuals could be purchased directly from the banks upon presentation of valid documents (within a specified limit). For amounts exceeding the limit, individuals able to prove their need for additional forex could purchase it from the banks. He also noted that current account forex receipts owned by domestic entities had to be repatriated into China, some of which could be retained and some sold to the designated banks at market rates. A verification system for forex payment (imports) and forex receipt (exports) had also been adopted.
31. Concerning the exchange rate regime in particular, the representative of China noted that since the unification of exchange rates on 1 January 1994, China had adopted a single and managed floating exchange rate regime based on supply and demand. PBC published the reference rates of RMB against the US dollar, the HK dollar and Japanese yen based on the weighted average prices of forex transactions at the interbank forex market during the previous day's trading. The buying and selling rates of RMB against the US dollar on the inter-bank forex market could fluctuate within 0.3 per cent of the reference rate. For the HK dollar and Japanese yen, the permitted range was 1 per cent. Designated forex banks could deal with their clients at an agreed rate. Under such contracts the exchange rate of the US dollar was required to be within 0.15 per cent of the reference rate, whereas for the HK dollar and Japanese yen, the permitted range was 1 per cent. The exchange rates for other foreign currencies were based on the rates of RMB against the US dollar and cross-exchange rates of other foreign currency on the international market. The permitted margin between the buying and selling rate could not exceed 0.5 per cent.
32. The representative of China further noted that since 1 January 1994, designated forex banks had become major participants in forex transactions. On 1 April 1994, the China Foreign Exchange Trading System was set up in Shanghai and branches were opened in dozens of cities. The Foreign Exchange Trading System had adopted a system of membership, respective quotation, concentrated trading and forex market settlement. Designated forex banks dealt on the inter-bank market according to the turnover position limit on banking exchange stipulated by SAFE and covered the position on the market. Depending on its macro-economic objectives, the PBC could intervene in the forex open market in order to regulate market supply and demand, and maintain the stability of the RMB exchange rate.
33. The representative of China noted that since 1 July 1996, forex dealing of the FIEs was carried out through the banking exchange system. He further noted that to encourage foreign direct investment, China had granted national treatment to FIEs in exchange administration. Accordingly, FIEs were allowed to open and hold forex settlement accounts to retain receipts under current accounts, up to a maximum amount stipulated by SAFE. Receipts in excess of the maximum amount were required to be sold to designated forex banks. No restrictions were maintained on the payment and transfer of current transactions by FIEs, and FIEs could purchase forex from designated forex banks or debit their forex accounts for any payment under current transactions, upon the presentation of valid documents to the designated forex banks or SAFE for the bona fide test. FIEs could also open forex accounts to hold foreign-invested capital, and they could sell from these accounts upon the approval of SAFE. FIEs could also borrow forex directly from domestic and overseas banks, but were required to register with SAFE afterwards, and obtain approval by SAFE for debt repayment and services. FIEs could make payments from their forex accounts or in forex purchased from designated forex banks after liquidation, upon approval by SAFE according to law.
34. The representative of China further noted that the laws and regulations mentioned above were: Law of the People's Republic of China on Chinese-Foreign Equity Joint Venture; Law of the People's Republic of China on Chinese-Foreign Contractual Joint Venture; Regulations on the Exchange System of the People's Republic of China; and Regulations on the Sale and Purchase of and Payment in Foreign Exchange.
35. The representative of China stated that China would implement its obligations with respect to forex matters in accordance with the provisions of the WTO Agreement and related declarations and decisions of the WTO that concerned the IMF. The representative further recalled China's acceptance of Article VIII of the IMF's Articles of Agreement, which provided that "no member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions". He stated that, in accordance with these obligations, and unless otherwise provided for in the IMF's Articles of Agreement, China would not resort to any laws, regulations or other measures, including any requirements with respect to contractual terms, that would restrict the availability to any individual or enterprise of forex for current international transactions within its customs territory to an amount related to the forex inflows attributable to that individual or enterprise. The Working Party took note of these commitments.
36. In addition, the representative of China stated that China would provide information on exchange measures as required under Article VIII, Section 5 of the IMF's Articles of Agreement, and such other information on its exchange measures as was deemed necessary in the context of the transitional review mechanism. The Working Party took note of this commitment.
A current account transaction has been defined as a transaction other than capital account transaction. This means that all transactions that do not alter assets or liabilities outside India of residents or assets or liabilities in India of non-residents are termed as current account transactions.
What falls under current account transactions:
Exports and Imports
Income - investment & other
Transfers and other
So in other words, they are claiming that people (ie business) can go to the bank and pay for international transactions without restriction. (see #28 above)
With that being the case (either or) the exchange rate is not determined by market forces. Its pegged. So if 200 people want RMB or 10,000 people want RMB, the peg stays within the small band they have set.
I should also add, receive payment for services or goods rendered...
You seem to believe the yuan's value is so manipulated that it bears little semblence to its free market value. Why then, is the black market rate for the yuan so close to the bank rate ??
1. How many black marketeers have corporate accounts?
2. If you are a tourist coming from America, and someone told you 'we are going to give you the real rate'... would you take it? Instead of getting 8.3 RMB you might get 5 or 6RMB for every dollar...
If you were that tourist, where would you go for exchange?
Well, if your dumb enough to trust someone offering to exchange you on the blackmarket you can find them anywhere. Typically they hang out in front of the larger banking locations in China and they speak a fair amount of english so they will generally approach you and make an offer on your way into the bank. However, as I said, if you are dumb enough to take their offer you have to be very careful because some are undercover cops and second, Chinese money is counterfited so often that many of people offering to make the exchange are usually doing so with counterfitted currency.
There are black market dealers all over Shanghai and Beijing...I simply haggled with them...I have some Chinese friends who also keep me posted...
2. If you are a tourist coming from America, and someone told you 'we are going to give you the real rate'... would you take it? Instead of getting 8.3 RMB you might get 5 or 6RMB for every dollar...
More like 8.8 ...which is barely enough to bother breaking the law....
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