China warns on impact of renminbi revaluation
(AP)
Updated: 2005-12-01 15:19

The fastest growing source of foreign exchange in 2004 were so-called "credit transactions" - offshore US dollar borrowings by Chinese companies that were converted to renminbi once they were onshore. The conventional explanation for Chinese entities borrowing money offshore to convert into renminbi at home was the chance to make windfall profits on a revaluation.

China's reserves are already up by $160bn in the nine months to September but their composition has slightly changed, with a larger contribution coming from the country's swelling trade surplus.

"The growth rate of hot money is slowing but, as far as the overall number goes, we are just going to have to wait," said Stephen Green, a senior economist at Standard Chartered in Shanghai. He said higher US interest rates, a bubbly local property market and evidence that China could resist pressure from the US for a large renminbi appreciation all pointed to easing capital inflows.

Despite that capital inflows not associated with trade and foreign direct investment remained robust, Mr Green said."Overall, this year's foreign exchange inflow is still likely to exceed $230bn, compared to the $196bn of 2004," he said.