China allows a 2.1% increase in yuan evaluation

[Robert Oak]

The People's Bank China, the country's central bank, said it would immediately allow the yuan to rise from its current 8.28 to the dollar to 8.11-an increase of about 2.1 percent. With the former fixed peg, Chinese manufacturers were able to produce relatively inexpensive products in comparison to U.S. exports. The undervaluation has been partly responsible for the loss of approximately 1.5 million jobs to China last year. Economists estimate that China's currency manipulation has resulted in substantial undervaluation of the yuan, perhaps by 40 percent or more. According to China, there will be a move towards a managed floating exchange rate regime based on a basket of currencies.

http://biz.yahoo.com/prnews/050721/dcth061.html?.v=15

http://news.yahoo.com/s/ap/20050721/ap_on_bi_ge/china_currency;_ylt=AvLVwVqQ3fOfEkhgQFj5Afis0NUE;_ylu=X3oDMTA3bGI2aDNqBHNlYwM3NDk-

They said an incremental 0.3% each day but I still can't tell if they are going to truly float the yuan or just give this modest reevaluation and then peg it again (there will be a move...what does that mean, yes or no?)

[phantom power]

1. I bet they aren't going to free-float it.

Truly free-floating it might be disruptive, and I don't think they want to stir up too much economic chaos, spark a trade-war, etc.

Pretty humiliating, that we're dependent on China's good sense to not throw us into economic chaos. Or, it ought to be humiliating. Most people are apparently oblivious to our true position in the world economy food-chain.

[Robert Oak]

2. Appears no float

This is a joke, they are going to re-peg it 2.1% higher when it's undervalued about 40%.

[phantom power]

3. Yeah, but I bet it won't be the last time they re-adjust.

It may become something like Greenspan and the prime-rate.

[Robert Oak]

4. I'll believe it when I see it

From watching China and their past behavior, I absolutely do not trust that totalitarian regime period.

[Lefty48197]

5. China ends Walmart subsidy:

That could be another headline for this story. By tying their currency to ours, the Chinese helped those retailers that rely on selling Chinese goods in America, and clearly nobody benefitted more than Walmart.

[German-Lefty]

6. No your big fat deficit spending Uncle Sam benefited too

In order to keep their currency low they printed their money to buy USD. The USD the put in US bonds. So they've been loaning the US government billions, allowing you to deficit spend at low interest rates.

[Strelnikov_]

7. I Feel Contracting Energy Supplies Drove This Decision

Higher yuan relative to the dollar puts them in a better postion for buying up the remaining petroleum supplies.

The GOP Corporatists have really painted the country into a corner.


China's Shrunken Thirst for Oil
Business Week
July 19, 2005

http://www.businessweek.com/bwdaily/dnflash/jul2005/nf20050719_7471_db016.htm

Even China's enormous thirst for energy appears to have its limits. Evidence has mounted across Asia in recent days that oil prices have finally grown too rich for China, which accounted for more than 40% of total growth in world demand in 2004 and is expected to feed even more explosive demand this year. But on July 18, OPEC cut 150,000 barrels a day from its forecast for oil-demand growth this year, citing China's weakening appetite for crude.

. . .

Fundamentally, sources say the reluctance of China's government to allow significant increases for domestic "guidance prices" for important retail products like diesel and gasoline has pushed the country's state-owned and independent refiners to the breaking point. The disparity between high Asian benchmark crude-oil prices and closely controlled prices for the products that are refined from that crude oil have forced significant cuts in production runs at refineries and have eaten into Chinese crude demand.

Moreover, artificially low domestic retail prices have also turned China into an exporter of products that are usually in tight supply. Its major trading companies, China Oil and Unipec, have been exporting significant extra volumes of "gasoil" (heating oil and diesel fuel) in recent weeks, a product that China ordinarily imports in volume. In other refined-product markets where China normally falls short on domestic production, importers have stopped buying foreign products altogether.

Meanwhile, domestic resale values in China for other hydrocarbons -- fuel oil, propane, and butane -- have run below import prices for large chunks of 2005, a phenomenon referred to in China as dao gua. During spells of dao gua, fuel oil and liquefied petroleum gas importers normally put product into stock. Stocks are now so high in some ports that importers have stopped buying altogether for weeks on end -- causing a second major dent in China's apparent oil demand, on top of diminished crude-oil runs.