China's currency breaks key barrier after walloping rise in surplus
Published on: Friday, January 12, 2007
SHANGHAI: China's currency, the yuan, hit a record post-revaluation high on Thursday, one day after Beijing announced a walloping rise in the country's full-year trade surplus.The breakthrough gain also came as China approved its mainland lenders to sell yuan-denominated bonds in Hong Kong, a move that one official called a key step for the Chinese currency in moving onto the international stage.In exchange-based trade, the yuan closed at 7.7935, dealers said, its highest value since China re-valued in July 2005. The yuan closed Wednesday at 7.8081 yuan.ADVERTISEMENT The central bank set the parity rate at 7.7977 yuan to one dollar, tipping the currency's value below 7.80 for the first time.Dealers attributed the appreciation to some US dollar weakness and China's galloping economic growth that has ramped up exports of everything from cheap plastics to more sophisticated electronics."(Breaking) the 7.8 level was a surprise but also reasonable," said Jin Di, a dealer with Bank of China."It's reasonable because the yuan appreciation is a long term trend. The rise was more or less affected by the trade surplus figure."ADVERTISEMENT China's trade surplus last year soared 74 percent to a record 177.47 billion dollars, Xinhua reported late Wednesday, citing customs bureau statistics yet to be released.In Hong Kong, the value of the yuan marched past the Hong Kong dollar for the first time in 13 years, hitting 0.99966 yuan as officials there applauded the decision to allow yuan-denominated bonds outside of China.
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"This is the first step for the yuan moving towards the international stage; it's a very important step. And this happens in Hong Kong; I feel very encouraged by the move," said Joseph Yam, chief executive of the Hong Kong Monetary Authority (HKMA).The reaction elsewhere was equally positive, with Standard Chartered Bank calling it a significant move towards the ultimate goal of full yuan convertibility and integration of China's economy with the outside world."(It) facilitates more efficient cross-border capital flows and demonstrates China's determination to integrate more fully with the global economy," the British-based emerging market specialist bank said."If this new channel provides Chinese corporates, not just financial institutions, (the opportunity) to tap the bond market in the future, it could improve their funding structures and put pressure on domestic bond markets to further deregulate," it added.Bank of East Asia chairman David Li said he believed the move could accelerate the appreciation of the yuan by 5.0-6.0 percent this year.The yuan was pegged to the US dollar until 2005 when Beijing decided to revalue and place the unit in a currency basket, allowing a greater but still tightly controlled margin of flexibility.The yuan gained 3.2 percent against the dollar last year, still agonizingly slow for critics in Washington who say the yuan is undervalued by as much as 30 percent, giving Chinese exporters an upper hand.China's trade surplus with the United States stood at 116.2 billion in the first 10 months of 2006, up 25.2 percent over the same period of 2005, according to previously released Chinese government figures.Stay up-to-date by following Daily Express’s Telegram channel.
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Meanwhile, China also announced Thursday a loosening of bond trading rules for financial institutions, a move aimed at improving the underused security as a financing channel."The regulations will lower the barriers to entry and enhance policy support for market-makers," the central bank's Internet statement said. - AFP