China continues to be one of the most fascinating economic stories going. And going, and going, and going. From today's Wall Street Journal (page C1 of the print edition):
While there has been a stampede out of emerging markets in the past week, China's stock markets have held close to their highest levels in two years. It is the latest evidence that China's investors take their cues from events close to home.
Meanwhile, from China Daily:
China's yuan strengthened to close below the psychologically important eight to the dollar for the first time since last year's revaluation aimed at greater exchange rate flexibility.
In part, the strength might be attributed to the steady ongoing march toward market liberalization. From the Journal article...
This year's surge has been prompted by Beijing's steps to fix problems that have tripped up China's stock markets for the past four years. So far in 2006, the benchmark Shanghai Composite Index is up 37% amid some of the heaviest trading volumes. The rise has been triggered partly by news, made official Thursday, that China will allow initial public offerings of shares for the first time in a year.
... and from Reuters:
In its 2005 report taking stock of the country's financial reforms, the People's Bank of China said liberalization of its exchange rate regime would continue to be a key policy focus.
"We will push forward reform of the foreign exchange management system and perfect the formation mechanism of the yuan's foreign exchange rate," the central bank said.
It also said it would push ahead with efforts to liberalize interest rates and seek to create new financial products, while continuing reform of state-owned commercial banks.
All good, but slow and easy still does it. From the China Daily piece:
"There's definitely a trend for the yuan to rise in value in future," said Sun Lijian, an economist at Shanghai's Fudan University. "But it's not going to be as fast as many believe."
There is only so much change the Chinese economy can absorb and the banking sector in particular needs a stable environment to carry out much-needed reform, he argued Monday.
According to the World Bank, that's a good thing. From Xinhua Online:
A major change in China's yuan exchange rate could have unpredictable effects on the country's booming economy and the Chinese Government's cautious approach to currency reform is understandable as a result, the World Bank's China country director said yesterday.
In a news briefing on the release of the World Bank's five-year development strategy in China, David Dollar said China was still a developing country with a weak financial sector and a lot of weak institutions.
"For the exchange rate, I have a lot of sympathy for the Chinese Government approaching that cautiously," he said. "I agree with the macroeconomists who think that it's in China's interests to allow some appreciation of the currency but I respect the government wanting to make that move gradual."
"A big change in the exchange rate really could have unpredictable effects on economic growth," he said.
In fact, those financial markets remain a bit of mystery. Once more, from the WSJ:
Interpreting market events is tough for China's investors. Personal finance columns in the tightly controlled media are often unsigned views on single stocks, while on-the-air commentators duck the specifics on the big trends by referring instead to historic charts, public opinion polls and financial news from overseas...
Wall Street experts aren't much use in China because few have licenses to dispense retail investment advice. No matter how much stock prices on the Shanghai and Shenzhen exchanges rise, their interest is limited by a cap on foreign investment of only 1% of the $530 billion in Chinese market capitalization. Instead, foreigners focus on Chinese stocks traded in Hong Kong, where different fundamentals prevail...
Until recently, Larry Lang was China's best-known economic gadfly. He appeared on television each Friday night to rail against inequities he saw taking place as China shifted toward a market-based financial system.
His show was canceled just as stocks started to sizzle. Prof. Lang declined to comment, saying by email: "This is not a good time for me to talk about stock markets."
And the beat goes on.