Sunday, June 20, 2010

Beijing 'liberates' the yuan.....against all the presumption that it will not happen....

Beijing 'liberates' the yuan

Venkatesan Vembu / DNASunday, June 20, 2010 1:49 IST Email
Hong Kong: China on Saturday signalled a major currency move, indicating it would end the renminbis artificial peg to the US dollar, which gave its exports an unfair trade advantage and brought it to the brink of a trade war with the US.

Citing an improved global economic situation, Chinas centralbank, the Peoples Bank of China (PBoC) said it had decided to proceed further with reform of the renminbi (RMB) exchange rate regime and to enhance the RMB exchange rate flexibility.
Although the statement ruled out a rapid appreciation of the renminbi against the US dollar and gave no time-table for the reform, the move was welcomed as an important and correct step which would serve the interests of both China and the world.
Even a gradual appreciation of the renminbi would promote Chinese consumption, marginally correct global trade imbalances, and contribute to global economic stability, said Deutsche Bank economist Jun Ma.
US treasury secretary Timothy Geithner, who has been under pressure from US lawmakers to declare China a currency manipulator, said he welcomed Chinas decision and called for vigorous implementation of the change.
IMF managing director Dominique Strauss-Kahn welcomed the move, and said a stronger renminbi will help increase Chinese household income and provide the incentives necessary to reorient investment toward industries that serve the Chinese consumer.
It would also help Chinese policymakers efforts to fight inflation, which last month jumped to a 19-month high of 3.1 per cent, exceeding the governments target.
A renminbi appreciation would also marginally benefit exporters in other emerging economies, including India, and give their central banks a bit of elbow room to allow appreciation of their currencies to tame inflationary pressures.
China pegged its currency to the US dollar nearly two years ago after the global financial crisis caused its exports to collapse. In recent months, after its exports and its economy recovered dramatically, it has come under increasing international pressure from the US in particular, but from other countries as well to end the peg that served to undervalue its currency.
US lawmakers have been pushing the Obama administration to levy high tariffs on imports from China.
China has all along resisted calls for it to allow the renmibi to appreciate, pointing out that the RMB had appreciated against a trade-weighted basket of currency following the slide in the value of the euro ever since the sovereign debt crisis erupted in Europe.
Even so, China was facing isolation at next weeks meeting of leaders of the Group of 20 economies, after US President Barack Obama circulated a letter calling for market-determined exchange rates.
The timing of the (PBoCs) statement will naturally be linked to the forthcoming G20 meeting, points out RBS economist Ben Simpfendorfer. But while a more flexible currency would be welcomed by Chinas critics, it is clearly unlikely to appease those calling for large revaluation. In his estimation, tensions will persist, especially heading into the US Congressional in November, particularly if the crisis in Europe worsens.
In announcing the move on Saturday, the central bank said the global economy is gradually recovering and that the recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability.
Not everyone is, however, convinced that the renmimbi will still be allowed to appreciate against the US dollar. This is just a gesture, pure rhetoric, and does not mean an immediate revaluation of the yuan is imminent, says Qu Qing, analyst at a Shanghai securities firm.
Credit Suisse economist Dong Tao too said the PBoC announcement was a gesture to the US, but without a specific timetable... The pressure is on China now to move its exchange rate ahead of the G20 summit.
Zhao Qingming, an analyst at China Construction Bank, suggested that although the central bank statement meant that China would exit from the dollar peg, the effect may be that the yuan may depreciate not appreciate against the dollar.
Simpfendorfer too concedes that the reference in the central bank statement to a currency basket will raise speculation of yuan depreciation in the event of further strength in the US dollar. But he adds that while such a move was theoretically possible, it would weaken Chinas repeated assertion that a stable yuan was important for global recovery.

My Comments:
All the experts and analyst were not predicting any Chinese curreny to appreciate.I have been talking on this since 3-4 months.It is still not sure how much the curreny Yuan will appreciate but it is happening .
Now we have to see how much Yuan appreciates and how much difference it makes in trade deficit between USA and China........but it will be positive for USA.....
Remember, USA is the growth engine for the whole world as it comsumes 30% of the world products and USA will remain the growth engine for next 20 yrs atleast untill some other country takes over that much of better USA economy becomes stronger and people there buys things more and more...............


  1. News as on march 2009 taken from magazine

    Windsor banks on growth from joint ventures Having been on a roller coaster ride these past few years,
    Indian machinery maker Windsor Machines has found its footing and is now ready to expand, said RR Nagrajan, Executive Director of the company. This comes on the heels of a major transformation, undertaken over the past year, to turn the company around. Set up in Thane (near Mumbai) in 1964 under a collaboration with RH Windsor of UK, in 1984 it was bought by Klockner-Werke of Germany and renamed Klockner Windsor India. In 1994, it changed hands again when Dilip G Piramal bought it and renamed it DGP Windsor India and then as Windsor Machines in 2005.
    According to Nagrajan, though Piramal still owns the
    company by virtue of being the largest shareholder, Windsor has a new investor in the form of Jain Irrigation (the second biggest irrigation equipment company in the world that supplies irrigation pipes, sprinklers and plastic sheets to India’s agricultural sector).
    “The investor is still negotiating with bankers on the amount of temporary debt to be transferred into equity,”said Nagrajan, adding that a large number of bank creditors had already been resolved. The new investor has appointed Prakash Kundalia to manage the company and, while it is jointly managed with Piramal at the moment, he is expected to take over the reins in due course.
    The “sustainable transformation” has meant that the company had to close down its Thane facility (it has moved its operations to Gujarat) and downsize its workforce to 500. The“correction phase” having been completed, Nagrajan says the company is now ready for the “growth phase”, which it expects will largely be built by forming new joint ventures.
    It currently has collaborations with German extrusion company Kuhne, which supplies its spiral die to Windsor’s blown film lines, and with Sumitomo. Together with Sumitomo, Windsor was instrumental in introducing the first locally produced hybrid injection moulding machine to the Indian market. After the ten year collaboration between both companies ended in 2007, in October last year, the Japanese company appointed Windsor as the sales/service representative for Sumitomo machinery in India. This is in spite of the relationship Sumitomo has with L&T- Demag (it bought Demag last year). Nagrajan offers an explanation. “We like to think it is based on our product and quality emphasis, customer orientation and employee commitment.”
    While Windsor offers blown film, pipe and injection moulding machinery under one umbrella, the setting up ofthree separate companies to undertake the diverse product range is “definitely on the cards” and may happen as soon as18 months. Also to happen soon is a more firm set up withKuhne, “once the dating phase is over”. Other dialogues with European/Japanese companies are underway, for technical partnerships (it previously had collaborations with Wavin and Rollepal for its pipe machinery), though Nagrajan would not name the parties involved.
    During the next phase of development, Nagrajan expects Windsor to quadruple its growth in four years. He said it was an opportune time for the company to forge its joint venture partnerships, as more investors are moving to India. “We are confident that with the joint ventures, and our positioning ofbeing able to offer quality technology at lower costs, Windsor will be an excellent export base for all the three product lines,” he concluded. Nagrajan says the company’s long-term vision is to battle Chinese competition by adopting a broader positioning for its products and not just focusing on pricing alone.“Our business, especially the injection moulding business, is proactively driven by the osmosis of taking high-end customers, who normally rely on European and Japanese technology,” he added

  2. TT,

    If you are referring to a article, please post the link rather than copying the whole article.

    Long comments make reading uneasy.


  3. For : Windsor Machine Read the march 2009 edition