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September 11, 2006
More Fuel For The Yuan-Debate Fire...
... which, thanks to Tyler Cowen (here and here), Brad Setser (here and here), and others, was burning pretty hot last week, comes today in the form of the latest report on the Chinese trade surplus. From The Financial Times:
China’s trade surplus reached $95.7bn through the first eight months of the year, soaring to a monthly record of $18.8bn in August, according to customs statistics released on Monday.
The figures for August were the fourth consecutive monthly record this year, well exceeding the $14.6bn reported in July. China’s trade surplus this year is expected to exceed last year’s total of $102bn within weeks.
The soaring Chinese trade surplus though does imply that the scale of capital outflows needed to keep the RMB from rising, should Chine ever liberalize its capital account (which, as Drezner notes, isn’t about to happen), has grown.
I reckon that's right, but I couldn't help notice this story, also from the Financial Times:
Xinhua, Beijing’s official news agency, on Sunday issued rules demanding international counterparts censor news and information distributed in China and barring them from dealing directly with local clients.
The rules, which take effect immediately, mark a dramatic resumption of Xinhua’s efforts to regulate the Chinese operations of rival foreign news agencies tightly...
Sunday’s ban on the distribution of any agency content that “harms China’s national security or honour” or “disturbs the Chinese economy or social order” matches other recent moves by Beijing to tighten media censorship.
Where this will lead is still anyone's guess...
However, it is unclear how forcefully Xinhua will be able to implement its new regime, which is likely to be opposed by domestic banks and other financial institutions as well as by the foreign news agencies themselves.
... but I'm moved to emphasize this passage, from Tyler's original New York Times article:
The yuan should not, as matters stand, float freely with free capital movements. Large quantities of Chinese savings, currently restricted to the domestic currency, would probably flee the country, worsening the serious solvency problems at Chinese banks. The Chinese must first clean up their banking system before they can have free capital markets. Contrary to the conventional wisdom, a market-determined value for the yuan might well be lower than today’s exchange rate, not higher.
Here's a question: What would normally happen to a free-floating currency, unrestrained by pervasive capital controls, in the wake of, to borrow the characterization in the FT headline, moves to "tighten the leash on foreign media"?
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