Speculators stop pouring money into China

business-times.asia1.com.sg :

After several years of pouring huge amounts of money into China, speculators have abruptly stopped doing so, somewhat reducing the pressure for the Chinese to revalue their currency and helping to bring inflation down surprisingly sharply. Hundreds of billions of US dollars have flowed into China in recent years, driving the country's total US dollar reserves beyond Japan's, to US$860 billion. But last fall, only half as much money flowed into China as a year earlier.

Investors in the once red-hot Shanghai property market are walking away, and currency speculators who had bet that China would sharply strengthen the yuan have pulled back as it became clear that the authorities favour a slow approach to currency appreciation. The reduced speculation has brought measurable advantages as well: inflation has almost disappeared, even as the economy grew at a 9.8 per cent rate last year. Economists attribute this in part to dwindling amounts of speculative money sloshing around the economy.

China has also enjoyed excellent harvests, and there has been so much investment in new factories that a recent government report estimated that three-quarters of all categories of manufactured goods suffered from oversupply. Prices are dropping not just for cars, but also for luxury apartments in Shanghai. Developers who used to be able to sell apartments before they were even built have begun offering discounts on units vacant for months, and are said to have offered free cars to close some sales.

(2006-01-14 11:36:37 SGT) [Biz] Permalink Comments [2]