Tuesday, February 16, 2010

Goldman's O'Neill Says 'Something Brewing' in China on Currency

Jim O'Neill said that China is likely to allow its currency strengthen by almost 5% to slow its most actively growing economy in the world.



"I have a firm belief that they are close to the movement of the exchange rate," - said O'Neill in a telephone interview from London after the Feb. 12 Chinese central bank said lenders have higher reserves. "Something is brewing. And this can happen at any moment. "

Chinese polismeykery trying to restrain credit growth, after growth of their economies achieved the highest rate since the fourth quarter of 2007. Banks 19% higher than the target lending rate at 7.5 trillion yuan ($ 1.1 trillion) in January because of the very substantial price increases in the real estate sector for 21 months.

Officials in Beijing did not allow the yuan to rise by controlling its value since July 2008, after strengthening by 21% against the dollar for the preceding three years. The status quo has become the subject of criticism of foreign politicians, who argue that artificially low currency makes exports to China and supports the benefits of asset market bubbles.

O'Neill, who coined the term BRIC in 2001, anticipating the boom in emerging economies of Brazil, Russia, India and China, said China may allow the yuan rise by almost 5% after a one-off revaluation, and then allowed to trade in a wider corridor or a larger set of currencies. "This could help in the fight against international pressure" - he said.

"The sooner - the better"
"They need to do something to slow the economy and combat the effects of inflation", - said O'Neill, whose projections, the growth of Chinese economy is currently in the range 12% -14%, and will grow by 11,4% during the year. "The more before they do - the better."

World Bank predicts China's growth in 2010 to 9%, which is higher than global economic growth, equal to 2,7%. Last month, the government announced that the expansion in 2009 was 8.7%.

Chinese yuan was faced with the biggest weekly decline for the year last week because of speculation importers bought dollars for a week before Chinese New Year holidays. Deputy Minister of Trade Zhong Shan (Zhong Shan) said Feb. 8 that the government may allow the yuan to move within a "narrow range", stressing the official position of maintaining a stable exchange rate. Yuan has decreased by 0.09% to 6.8330 per dollar last week, that was the largest decline in five days from January 9. Requirements for the reserves rose by 50 basis points, or 0.5%, and will enter into force on 25 February, reported the People's Bank of China. The current level of 16% for large banks and 14% for smaller ones.

The record level of credit
The record level of lending in the past year and a package of incentives at 4 trillion yuan helped China to lead in terms of recovery from the deepest global recession since the Second World War. The fears of investors concerning the investment bubble in China, and measures to be taken by the government to prevent or reduce them, we finally found form and enhanced this year.

"We need a multifaceted approach to slow the economy", - said Stefan Female (Stephen Jen), managing director of London BlueGold Capital Management LLP. In an interview in which he gave a forecast that the yuan may be allowed to grow in the first half of the year.

Barack Obama in an interview with Bloomberg BusinessWeek on Feb. 9 said that a stronger currency would help China cope with "many bubbles that are potentially" overheating economy ".



The Bloomberg

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