Your intrepid correspondant today finds himself typing this in an airport lounge in South East Asia. It is always re-assuring when your hotel has a massive cast iron gate and two security men who perform a complete bomb sweep of your taxi before allowing you into the hotel compound.

In more amusing news, an article originally written in Hong Kong last Saturday before being picked up and mistranslated by the People's Daily managed to shake the currency markets yesterday. The story of the mistranslation is funny and telling:

Guan Xiangdong, a reporter for the China News Service, is more at home writing about tourism than about finance. But she was on duty in Hong Kong last Saturday while more financially savvy colleagues took the day off. And in a bit of enterprise, she put together a story on the impact of a possible appreciation of the Chinese currency. Her sources: bits and pieces of news and analysis gleaned from local newspapers.

Yesterday, her efforts roiled the world's trillion-dollar-a-day foreign exchange market and sparked panicky emails and phone calls among currency traders and fund managers from Singapore to Stockholm as the U.S. dollar tumbled. The dollar later recovered against major currencies.

How a reporter for an obscure, semiofficial Chinese news service managed to set off such chaos -- and losses for traders caught off guard by the market's gyrations -- is a tale of the modern electronic news media gone awry. Like the child's game of telephone, Ms. Guan's story hopped from one news outlet to another, changing significantly along the way. It also spotlights the jittery state of currency markets now that the U.S. is putting pressure on China to allow its currency to rise in order to help cut China's huge trade surplus with the U.S...

Ms. Guan, who says she has been a reporter for 20 years, was flabbergasted by the fuss. "I can't work out why it's got blown up like this," she said. She says that all she did was trawl through Hong Kong newspapers for views on how an appreciation of the Chinese currency would play in the city -- views that she attributed to "observers," not to the newspapers she was drawing from.

The online People's Daily got hold of her story and farmed it out to a translator who put it into English. The translation took her speculative musings and made them much more concrete. It stated that China had decided to revalue, by 1.26% within a month and 6.03% in 12 months. It gave no source for the story and neglected to mention China News Service. China News Service was set up in Beijing in the early years after the 1949 Communist revolution to channel news to Chinese living outside the country. It maintains close links to the Chinese State Council.

In London, yesterday morning, Bloomberg staff who monitor global currency markets were alerted to the People's Daily article. It was unearthed by software that Bloomberg uses to automatically search the Internet for new postings that contain key words.

The People's Daily article was written in clunky English, but the first sentence contained what could be construed as a major development: a revaluation of the yuan or an expansion of the band in which it trades "will be announced" after a meeting between Chinese and U.S. economic officials -- a meeting that actually did take place this week.

Based on the article, Bloomberg shot a headline around the world. An editorial staffer familiar with what happened said that before the Bloomberg story was published, a Bloomberg reporter contacted the People's Bank of China, and it declined to comment. (Later in the day, the bank denied the report.) Weighing that nonresponse along with the assumption that the People's Daily speaks for the Chinese leadership, Bloomberg decided to go with the story. "The key is that it's state-owned -- the People's Daily -- there it was on the Web site," said one Bloomberg staffer.

The Bloomberg story flashed across trading screens just as Asian currency traders were ending their day and European markets were opening...

It once was true that a story in the People's Daily really did have the imprimatur of the Chinese government. Foreign journalists would study every phrase in search of nuances that could signal a change of policy. But now the official Chinese media, under commercial pressure to compete, often in real time, sometimes struggle with basic accuracy. After all, reasoned J.P. Morgan's Mr. Piron, "The People's Daily is the mouthpiece of the government."

That logic helps explain why about $2 billion, by Mr. Piron's reckoning, was traded in the space of a few minutes after the Bloomberg story was issued. The widespread belief is that an appreciation of the Chinese yuan would trigger a wider revaluation of currencies around Asia, where central banks have been intervening massively to keep their currencies cheap and their exports competitive...

Bloomberg defended its handling of the story. "If China's government newspaper runs a story saying China is relaxing its currency peg, that is big news, and it's natural that it should be on Bloomberg," said Judith Czelusniak, Bloomberg's spokeswoman in New York. "We'd be remiss in not reporting it," she said. When the People's Daily announced their story was a poor translation "we reported that immediately," she added.

Reuters added to what turned out to be a chain of confusion. At one point, it flashed the news that Bloomberg was quoting the People's Daily as reporting a yuan appreciation.

It was the sudden downward movement in the U.S. dollar that caught the attention of reporters in the Singapore newsroom of Reuters PLC. "When the markets started moving, we covered that," says regional editor-in-charge Adam Cox.

Searching for a basis for the movement, he says, his team started hearing from currency-market traders that a Bloomberg report on China's yuan was responsible. When his team found a copy of the story, says Mr. Cox, publishing a Reuters version attributed to Bloomberg was an easy decision.

(Dow Jones Newswires, a financial news service owned by the publisher of this newspaper, did not publish a report of the supposed revaluation, nor did it pick up the Bloomberg report.)

After yanking the story, editors at the People's Daily online edition expressed regret, albeit defensively. "We are very sorry that the translation was not accurate -- it is our mistake," said one editor, who declined to be identified. But the editor also took a swipe at the China News Service: "Their reporter should be criticized. She put too many vague sentences in the story, which eventually caused our mistranslation."

1. The Wall St Journal cannot help but take the high road over Bloomberg's mistake. Media hate missing a scoop, but love reporting a mistaken one. Schadenfrude.
2. The story demonstrates how the People's Daily gathers many of its articles. It acts as an aggregator...but usually without attribution. This wholesale and continual swiping of articles from others is not a good advertisement for China's IPR clampdown, nor does it reflect well on its major media outlets.
3. Xinhua has long been considered the only truly official outlet for the Government. New rule: if it's not on Xinhua, you need to check.
4. The poor reporter from Hong Kong who originally put the piece together basically had hobbled together some bits and pieces from a left-wing Hong Kong paper, the Ta Kung Po. Another demonstration of the recycling of news.
5. If you believed markets really were efficient, you need to ask yourself why this article caused such a big move. The article, even mistranslated, said the yuan would be revalued at exactly where the forwards had it priced. In other words, even if this was true it would be a case of the Government catching up to where the market already was. So if this information was already in the market, why would it move? Put it this way, if markets were truly efficient, there would be no such thing as a profitable finance industry.
6. The desperation for the next scoop seems to be coming at the cost of credibility. In a world that prizes speed above all else, you need to remember being first is not the same as being accurate.
7. The Chinese have already said they will make the revaluation a surprise. Announcing it a week in advance isn't a surprise.
8. Even when (it no longer seems an if) China revalues, what next? It won't solve America's trade deficit problems. What will politicians find to go after next? Why, another revaluation of course! Few have noticed the Chinese central bank limited offshoring (US dollar) borrowing by local banks and firms this week to again relieve pressure on the yuan. Without a liberalised capital account the revaluation means even less. Also little noted was Japan's foreign exchange reserves jumped another US$5 billion last month, to over US$840 billion. Where's the pressure on Japan? Oh that's right, that's soooooo 1980s.

There's plenty more by my plane is boarding. In the end the rule remains the same: don't believe everything you read.

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Danwei
China Herald