Research Asia

China: Booming growth and big FX reforms − but challenges loom

Thu, Mar 1 2007, 14:55 GMT
by Thomas Harr

Danske Bank A/S


  • Last month I visited China talking to local analysts and policy makers. The general impression is that the dynamism and optimism in the Chinese economy remain intact. And as China moves further up the value chain it is difficult to see anything stopping the Chinese boom just yet.
  • We forecast that the Chinese industry will gain speed during spring as the global industry bottom out. With investment growth remaining around 20% y/y and China's industry doing fine we expect the economy will grow at close to 10% y/y in 2007.
  • Moving beyond the outlook for short -term growth the big issues in China are 1) the environment, 2) inequality, and 3) rebalancing the economy. We provide a brief update on the issues.
  • On the fx front big changes are underway. China will create a new investment agency to manage a portion of the foreign exchange reserves. The investment agency will invest in stocks, bonds, equity stakes and probably also energy supplies. On the margin the changes to China’s fx reserve policy are a) USD negative, b) positive for risky assets, e.g. equities and emerging market assets and 3) negative for developed market bonds.
  • We expect the Chinese authorities will allow for more flexibility in the renminbi. A more active use of China’s fx reserves and a more flexible currency will over time diminish the “automatic stabilization” on the global financial markets coming from central bank buying.

Published on  Thu, Mar 1 2007, 14:58 GMT

Archive

Danske Bank  | Holmens Kanal 2-12, DK-1092 Copenhagen
http://www.danskebank.com/ | danskeresearch@danskebank.com

Legal disclaimer and risk disclosure

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

Interested in forex trading? forex brokerage firms!


Forex Capital Markets, LLC (FXCM)
Contact the broker/FDM
Open a demo account
Interbank FX, LLC
Contact the broker/FDM
Open a demo account
ACM USA LLC
Contact the broker/FDM
Open a demo account		Ingot Brokers
Contact the broker/FDM
Open a demo account		Easy-Forex™ Trading Platform
Contact the broker/FDM

FXstreet.com will give you a 3 months membership as soon as minimum rebates have been generated (€150 for private trader/ €300 for corporate trader)

[Read Premium full description]


Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management.

Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

©2008 "FXstreet.com. The Forex Market" All Rights Reserved.