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January 12, 2005
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China's new year economy
Three pieces of related economic news from China: 1. China's foreign exchange reserves rose by 51.3% in 2004. China's reserves now total US$610 billion, excluding the US$45 billion injected into Bank of China and CCB. What does it all mean? For the year China's trade surplus was only US$32 billion out of total exports of US$594 billion. While the surplus with the US is much larger, China is actually in deficit with many countries, especially those that provide raw materials and energy. China is, on a massive scale, becoming America's workshop. In theory, that US$32 billion surplus would be exactly the amount China's reserves increase by for the year. It represents the extra money countries have paid for China's exports as opposed to the money China has paid the world for its imports. Instead reserves rose by more than US$200 billion. The difference is from those speculating on an appreciation on the yuan, the so-called "hot money". It explains the Chinese dilemma in allowing an appreciation in the yuan: it could lead to a massive and rapid outflow of funds with potentially devastating effects on the domestic economy. Success comes at a price. And all that money still doesn't buy you happiness. posted by Simon on 01.12.05 at 09:45 AM in the
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