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Fat suitcase repatriation
HOME > PAST ISSUE > MAGAZINE ARTICLEMay 2004
Unlike many of his compatriots Fat Dragon is resisting the temptation to repatriate his hard currency fortune built up during the heady days of "suitcase investing" and swap it for renminbi, in the expectation of a large windfall when the currency is revalued.
Not that there is any shortage of highly paid boffins advising all and sundry to do just that, ahead of what they are sure will be a decision in Beijing to finish its policy of pegging the renminbi to the US dollar.
Goldman Sachs has been beating the revaluation drum for nigh on six months, a view that has caused many of its executives who disagree with this call a great deal of grief. Earlier this year, the smarties at Merrill Lynch tipped a 10% revaluation sometime in 2004. And one prominent foreign analyst around town in Shanghai has been spouting his tip of a 10-15% revaluation in the first six months of this year, followed by another similar up-tick next year. It comes as no surprise then that the Chinese have been bringing their money home by the truckload, a reverse on decades of taking it out. A few foreign investment banks have also been dressing up their purchases of A-shares as renminbi plays as well.
Such confidence in the Mao-adorned currency makes Fat Dragon nostalgic for the days when every bank had its own "yellow cow" loitering outside wanting to dump their renminbi for greenbacks.
As the dollar has slumped, most of these currency changers seem to have joined the ranks of the long-term unemployed. As a general rule of thumb in China, it's best to apply an old-fashioned test to government pronouncements - don't believe anything until it is denied. Generally, this has held your correspondent in good stead over long periods.
But on this occasion, Fat Dragon is willing to give the People's Bank of China the benefit of the doubt. So far, they have done exactly what they said they would - experiment with a series of measures to reduce demand for the renminbi and increase demand for dollars. Before they even think of revaluation, which would amount to a tectonic shift in policy for China, the PBOC will wait to see how these measures play out.
In the meantime, rising inflation and a gathering trade surplus have also begun to reduce the imbalances in the Chinese economy, which would force it to rethink its currency policy in any case.
If this trend is maintained, look out for the return of the "yellow cows" and a bit of humble pie for the high-and-mighties at Goldman Sachs and the rest of them.
Goldman Sachs has been beating the revaluation drum for nigh on six months, a view that has caused many of its executives who disagree with this call a great deal of grief. Earlier this year, the smarties at Merrill Lynch tipped a 10% revaluation sometime in 2004. And one prominent foreign analyst around town in Shanghai has been spouting his tip of a 10-15% revaluation in the first six months of this year, followed by another similar up-tick next year. It comes as no surprise then that the Chinese have been bringing their money home by the truckload, a reverse on decades of taking it out. A few foreign investment banks have also been dressing up their purchases of A-shares as renminbi plays as well.
Such confidence in the Mao-adorned currency makes Fat Dragon nostalgic for the days when every bank had its own "yellow cow" loitering outside wanting to dump their renminbi for greenbacks.
As the dollar has slumped, most of these currency changers seem to have joined the ranks of the long-term unemployed. As a general rule of thumb in China, it's best to apply an old-fashioned test to government pronouncements - don't believe anything until it is denied. Generally, this has held your correspondent in good stead over long periods.
But on this occasion, Fat Dragon is willing to give the People's Bank of China the benefit of the doubt. So far, they have done exactly what they said they would - experiment with a series of measures to reduce demand for the renminbi and increase demand for dollars. Before they even think of revaluation, which would amount to a tectonic shift in policy for China, the PBOC will wait to see how these measures play out.
In the meantime, rising inflation and a gathering trade surplus have also begun to reduce the imbalances in the Chinese economy, which would force it to rethink its currency policy in any case.
If this trend is maintained, look out for the return of the "yellow cows" and a bit of humble pie for the high-and-mighties at Goldman Sachs and the rest of them.
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