Category: China

RMB Notes, part II

Pressure for revaluation of the RMB continues to mount on both the financial markets as well as on the Chinese government. Meanwhile, debate continues among economists, financial analysts, and currency traders as they remain vigilant for signs of an impending change in China’s currency policy.

The Financial Times’ Richard McGregor reports that yesterday for around 20 minutes the RMB traded 8.27 to the dollar, slightly higher than its set band of between 8.2760 and 8.8600. Although there was no confirmation as to whether the Chinese government was involved in any trades at this higher price, some observers took it as a sign that the government was testing the waters for a revaluation in the near future.

“…[T]he point is that they are ready to do it and could move at any time,” [Frank Gong, a strategist with JP Morgan in Hong Kong] said. He said the higher rate remained on trading screens for up to 20 minutes, a sign that the authorities may have been testing the market “to see how much ammunition they may need to keep everything under control”.

Beijing has been sending strong signals in recent weeks that it has completed all the technical preparations necessary to remove the US dollar peg and allow greater flexibility for the currency.

Congress is clearly worried about the harm an undervalued Yuan may do to politically sensitive sectors of the U.S. manufacturing industry. They have been especially concerned following the expiration of the multi-fiber agreement on January 1st of this year, motivated by fears that a surge of cheap Chinese textile imports would put more Americans out of work.

One response to this is Democratic Senator Charles Schumer’s proposed bill decrying China’s RMB peg as providing:

the People’s Republic of China with a significant trade
advantage by making exports less expensive for foreign consumers and by making foreign products more expensive for Chinese consumers. The effective result is a significant subsidization of China’s exports and a virtual tariff on foreign imports.

Schumer proposes a 27.5%* tariff on all Chinese exports to the U.S. unless Beijing agrees to revalue the RMB. Frighteningly, the bill survived a preliminary vote earlier this month and is scheduled for one final vote in July.

Passage of the legislation would unquestionably violate WTO regulations, though Fred Bergsten, Director of the Washington, DC basedInstitute for International Economics has suggested that one possible way around this restriction might be for the United States, along with other IMF member countries to seek:

…World Trade Organization authorization on the grounds that persistent currency manipulation represents both an illegal export subsidy and “nullification and impairment” of previously negotiated liberalization.

Whatever China’s decision, it will not be an easy one. (Anymore than Senator Schumer’s proposed quick fix be quick or a fix for U.S. industry and our widening trade deficit. But I digress.) Pegging the RMB to the dollar is a dangerous and double-edged sword. Although revaluation may ease international pressure on Beijing for now, it will likely create a set of new and equally difficult economic challenges both internationally and domestically.

The next post will examine some of implications of a currency revaluation and look at these problems in more detail.

*27.5% is the average undervaluation of the RMB cited in the text of the legislation.

RMB Notes

Hardly a week passes without at least one article on Chinese currency policy by at least one major newspaper. In the ongoing debate over maintaining, adjusting, or abandoning the RMB’s peg to the dollar, one commonly cited reason in favor or adjustment is the increasingly large flow of speculative capital into China.

Consider this report, posted yesterday and updated today by the Financial Times:

The World Bank on Wednesday said China should revalue the renminbi and abandon the dollar peg in favour of a link to a basket of currencies.

It warned that without revaluation, speculative capital flows could destabilise economies in the region.

Homi Kharas, the bank’s chief economist for the region, said there was no imminent risk of a financial crisis caused by currency speculators, like that in the late 1990s, but “very large volumes of money” flowing into the region threatened economic distortions.

And just how large are the “very large volumes of money” currently flowing into China? Because such flows are illegal, gathering accurate data is impossible. But it is possible to make reasonable estimations. According to China’s central bank and Reuters:

China’s foreign exchange reserves jumped $49.2 billion in the first quarter to a record $659.1 billion, the central bank said on Thursday, signalling persistent inflows of capital betting on a yuan revaluation.

China posted a trade surplus of $16.6 billion in the first quarter, compared with a trade deficit of $8.4 billion a year earlier. Foreign direct investment in China was $13.4 billion in the first quarter, up 4.5 percent on the year.

That left some $19 billion* in other transactions on the balance of payments, much of which analysts believe was speculative money inflows betting on a revaluation of the yuan.

One popular desitination for these speculative inflows is the property market. By converting U.S. dollars into RMB, and then investing in China’s booming real estate sector, a speculator doubles his chances of profit – once from the rise in property prices, and once again from the rise in the price of the RMB in dollar terms should the Chinese government revalue.

And just how booming is real estate in China, you ask? According to Brian Bremner and Frederik Balfour’s excellent article Businessweek Online:

New hundred-square-meter apartments in posh sections of Shanghai have doubled in value, to $550,000, since 2003. High-end properties in the Chinese megalopolis have shot up 20% during the past three months alone. It’s not just Shanghai. UBS Securities (UBS ) says overall urban land and property prices in China last year were up 70% over 2001.

Sounds pretty tempting, no?

Although figures on speculative capital flows and the latest global real estate boondoggle are a common sight in print and online, one thing I have yet to see addressed is exactly how speculators are moving into RMB positions given the supposedly tight controls on foreign exchange in China.

Exchanging small amounts of dollars for RMB and vice-versa is easy. Anyone who has travelled to China knows that this can be done at the airport (provided one holds on to those receipts!) or even through black market money changers.

But one can’t expect to purchace a prime piece of Shanghai property with the one thousand dollars worth of RMB purchased at the airport exchange desk. And even if one could purchase the property, and even if one were able to sell it for a profit, and even if the Chinese government did revalue the RMB, without a recepit for that new amount all that profit would be for naught, stuck inside China.

But if it were that easy for the Chinese government to stop speculative capital flows, there would not have been $19 billion worth of them in the first quarter of this year.

So how do they do it?

I was pleasantly surprised to see that the Mure Dickie and Richard McGregor of the Financial Times answered the question today in this article. Unfortunatly, it’s only accessable to FT.com subscribers, or in the print edition, but consider this fascinating introductory anecdote:

Using his permanent residency in France, Mr Hu set up an offshore company to buy property from a real estate business he established in China… The property did not actually exist. But the paper trail allowed Mr Hu to apply to [legally] bring 284,000 euros into China.

The Wenshou entreprenuer – who was unmasked last month by regulators – offers an example of the efforts that individuals and companies have been making to move funds into the renminbi amid widespread speculation that Beijing is moving towards a significant revaluation.

I still have no idea how Mr. Hu planned on getting his profits back out of China, but the story is interesting nevertheless. For anyone interested, the FT article goes on to list five other commonly used methds to, “bet on the renminbi despite China’s capital controls.” Here are three for your consideration (comments mine):

1) False trade accounting – Intentionally mark up the prices of your exports to bring in more dollars.

2) Money smuggling – Black market banks and corrupt officials serve your forex needs.

4) Increasing overseas leverage – Unless you’re one of the lucky few companies allowed to borrow abroad, forget about it.

Still not sure how they plan on changing back to dollars, but I suppose if the money is there, ways can be found.

*Forex numbers are online here, but for the life of me I can’t find balance of payments data, so don’t ask how Reuters came up with the $19 figure. If anyone cares to work out the math, it would be much appreciated.

Sino-Japanese memorial friendship tree cut down

On April 25 at about 9:20am a message was left by an employee of the’Aimesse Yamanashi’ Yamanashi prefectural industrial relations hall in Kofu city, Ozu-cho at the South Kofu police station stating that “the Sino-Japanese commemorative frienship tree in our grounds has been cut down.”

The commemorative tree was 12 centimeters across and 5 meters tall. It had been cut with a saw-like implement approximately 30 centimeters from the base.

The tree was a 17 year old maple, planted on May 25 1995 to commemorate 10 years of ‘friendship city’ relations between Kofu and Sichuan, China. There had also been a commemorative stone plaque by the tree, but it had been defaced with red spray-paint and knocked over.

Translated from Asahi newspaper, April 25 2005

Koizumi and pals offer olive branch to China

Koizumi apologizes once again to former colonies at an Asia/Africa development and aid summit in Jakarta BBC report

Addressing delegates, Mr Koizumi said: “In the past Japan through its colonial rule and aggression caused tremendous damage and suffering for the people of many countries, particularly those of Asian nations.

Yomiuri also reports quotes him as saying

「経済大国になっても軍事大国にはならず、いかなる問題も武力によらず平和的に解決するとの立場を堅持している」
Despite becoming an economic superpower, Japan will not become a military superpower, and whatever problems arise will adhere to the position of peaceful resolution without calling upon violence.

Perhaps Mister Koizumi will be able to make peace with China with the help of his new friends.

Jin-ken
Here is Prime Minister Koizumi with Japan’s twin mascots for human rights. The characters are ‘cleverly’ given names that both sound like real Japanese names and appropriate words. Mamoru Jinken (translates to ‘protecting human rights’) on the left and Ayumi Jinken (steps towards human rights)on the right.

Fascist wannabes in Japan fight back against Chinese protests

Japan Times report:

These fascist wannabes are the same guys who hire yakuza wannabes to drive around in silly trucks and forced a manga publisher to withdraw a piece of historical fiction that depicted the Nanjing Massacre. I really hope that the far more reasonable majority has the guts to stop paying attention to these morons.

On April 12, a man called a broadcasting company in Fukuoka saying there would be an explosion at the Chinese Consulate General in the city later in the day, Fukuoka police said.

The caller said he had planted 10 kg of explosives that would go off at 7 p.m., police said.

The consulate the same day also received a razor along with a letter of protest over the anti-Japan demonstrations in China, and a razor blade was also sent to another consulate in the city of Nagasaki, the Chinese Embassy said.

Police searched the consulate’s premises and found no explosives, and are investigating the case as a malicious hoax.

On Friday, an envelope containing harmless starch-like white powder was sent to the Chinese Embassy in Tokyo in an apparent anthrax threat, police said over the weekend.

Also that day, a mailbox doorplate and intercom at the Tokyo residence of Chinese Ambassador Wang Yi were found sprayed with red paint.

Quotes from the Tsukurukai text

A quick look at my last posts made me realize I forgot why I was posting: to show excerpts from the new textbooks!

It’s important to remember that the vast majority of the protesters in China and Korea have not read them for themselves. The Tsukurukai realizes this and plans to post free Chinese and Korean translations online in the near future.

Recent arguments I’ve seen characterize these textbooks as “not glorifying war but merely deviating from leftist doctrine that Japan invaded other nations just for the sake of invading.” However, these aren’t scholarly texts, they’re meant to be read by 14-year-olds who have to be told what to think. The fact that Tsukurukai has made texts for such an impressionable audience guarantees controversy and makes it difficult to deny that they are tools of persuasion. And picking battles such as the Nanjing massacre, comfort women, et cetera is like kicking someone when they’re down and belies the more extremist beliefs of the authors.

Anyway, trying to analyze all this is making my head spin. Let’s take a look at some excerpts. I got these from the online newsletter of The Marxist Faction of the Revolutionary Communist Union of Japan (so take it with a grain of salt!):

These “history” textbooks erase both the comfort women and the forced march of Koreans from history, and treats the Nanjing Massacre, the gravest sin of the “imperial army”, as if it substantively didn’t happen with such lines as “There were several killed and wounded among the Chinese army and civilians,” “There is disagreement on the actual number killed” et cetera. Throughout it regards The Japanese Empire’s invasion of Asia as the “Emancipation of Asia”, and makes claims that “Japan’s actions bolstered the people’s of Asia” to “quicken the pace of independence movements” in Asian countries. This text seems to know no bounds for scandal. What’s more, in the “Civics” textbook, the “Constitutional Reform” section romanticizes the Constitution of the Japanese Empire (the Meiji Constitution), comparing it favorably to the “imposition of the GHQ” as our current constitution is characterized. It goes on to rationalize worsening the constitution, emphasizing the rationalization of “the right to self defense” and “the duty of national security”.

↑Seems to repeat the same problems from 2001.

Ministry of Education Instructs revision to say “Takeshima (Dokdo) is illegally occupied by Korea”

They didn’t stop there. The Ministry of Education instructed the textbook publishers to revise the caption “Takeshima, the island over which We are in territorial confrontation with South Korea” under a picture of Takeshima/Dokdo, explaining that “there is a fear that there would be misunderstanding over territorial rights”. As a result, the publishers revised it to say, “This is Japan’s exclusive territory, but South Korea is illegally occupying it.”

That’s all for now. Coming up: choice quotes from Japanese editorials on the subject and the right wing’s reaction. Also I might take a look at Wiki Japan, not sure. Stay tuned!

Looking at “Tsukuru-kai”


It looks like Japan-China tensions just might become a dominant theme of 2005. Just when you thought things couldn’t get worse after Foreign Minister Machimura returned to Japan empty-handed, a Tokyo court rejected claims for compensation of Chinese victims of Japan’s chemical warfare in WW2. Although China has offered to pay for damage to the Japanese embassy caused by hands-off approach to security, it has no plans to let up pressure on Japan to give as-yet unspecified concessions. While there was a message on Chinese TV calling on Chinese not to take part in “illegal” demonstrations, there’s no guarantee that China won’t authorize a new round of legal protests.

On the Japanese side, Machimura’s visit has been described as Japan’s “last card” and the government wants the textbook issue to be seen as a domestic problem, off limits to negotiation. Here’s how I see it: China and Japan are not foolish enough to let this affect their economic relationship, let alone place sanctions each other or God forbid fire on each other (Of course I could be wrong, the CCP is unpredictable and I know very little about it — comments welcome). China simply sees the run-up to the September vote on UNSC expansion as perhaps the weakest point in postwar Japanese diplomatic history. Japan will likely the support of 90 Why miss the opportunity to shake a few concessions out of Japan while you’ve got them by the balls? And of course it is very much in Japan’s interest to make a compromise because a permanent UNSC seat will give Japan a much stronger diplomatic position in the future. (Although with the new developments it looks like many nations want to stall for time, citing contempt for “artificial deadlines”).

But enough about that — I’m here to talk about the current sticking point in Japan-China relations, the 新しい歴史教科書を作る会 (the “Make new history textbooks association”, or “Tsukurukai” for short). These are the people making the offending textbooks (Published by Fusosha) that have caused thousands in China to protest and some people in Korea to cut their fingers off. Their tenets:

1. Assert — renew Japan’s history textbook to give an appreciation for Japan’s traditions and history to the children.

2. Fight “masochism” — Don’t let outside countries influence our textbook inspection system (citing the first instance of such, in 1986 as being the result of “misreporting”), get rid of “foreign pressure” and make textbooks for JAPAN, not other countries.

3. Action — call for public support to “fix” an unjust history such as the uncritical acceptance of the idea that the comfort women were forced into service. On a side note, much of action they take to gain support is actually pressure on those who disagree with them. The recent lawsuit against a Chiba library that refused to accept the textbooks brought by the Tsukurukai is just one example of this. Another is the pulling of a manga depicting the Nanjing Massacre.

4. Passing inspection — Making the necessary changes to get the textbooks approved for use in classrooms. The site, from 2001, says that it will make the necessary changes to help “achieve a balance in the quality of Japan’s self-image”. Again, the Tsukurukai places a huge amount of pressure on the inspectors, which I cannot document presently but would like to.

5. Implementation — Get the textbooks used. It’s been noted that they haven’t been too successful in this regard, but as other have commented it has had an effect as well.

６．Agreement — This is, I believe, the main goal of this Association. That is, make enough noise to create a “fair and balanced” textbook industry. No textbooks refer to a Nanjing “Massacre” but instead a Nanjing “Incident”, which is a pretty clear-cut win for Tsukurukai.

A lot of people (especially the protesters in China and Korea) are saying: why the hell doesn’t Japan change its textbooks? Japan’s government does guarantee free speech, so it is somewhat defensible for them to avoid stepping in themselves. However, there is a recent precedent for holding people accountable for causing “meiwaku” (a nuisance) to the Japanese government because of stupid things they were doing — the Iraqi hostages. There was even talk by one government official (Koizumi, I think) of making them pay for their own ride home, a sentiment shared by probably a majority of people.

But where is the popular movement condemning the bothersome actions of Tsukurukai? Aside from the obvious bullying and pressure that would come from reproaching the rightists, one of the reasons I don’t expect to see many cries of ‘meiwaku’ is the way the issue is being formed as a ‘domestic’ issue that Japan should be defensive about. Japan is asking CHINA to apologize (although Koizumi said he’d stop that at the summit next week) not the publishers.

I hate to say it, but the fact that the govt and media are giving the rightists a free pass on this one might have something to do with the fact that their ideas resonate with a large part of the government and the people themselves. Criticism by the Chinese only seems to back up
the validity of the textbooks’ claims. And as much sense as it makes to compare this to the Iraq hostage situation, sentiments like that are strictly a one way street — when some leftist wackos embarrass the govt (Iraq) they are stupid, when some rightist wackos stand up for Japan, they’re all but heroes.

Anti-Japan Protests Spread to Vietnam

From Reuters Japan:

Anti-Japanese Protests Held at Japanese Embassy in Vietnam
Apr. 17, 2005 7:03pm JST

HANOI (4/17, Reuters) Anti-Japanese protests were held in front of the Japanese embassy in Vietnam’s capital city Hanoi.

Wearing headbands, the participants shouted anti-Japanese slogans into bullhorns and waved banners written in English and Chinese characters. One of the banners read “Japan get out!”

The demonstrators are said to be expatriate Chinese living in Vietnam.

日本語の原稿を読むにはREAD　THE　REST　をクリックしてください。
Continue reading Anti-Japan Protests Spread to Vietnam

攻撃を受けた日本総領事館、中国国旗に換えられる More lame protests in China UPDATED

UPDATE 2: JANJAN has good coverage with lots of links to video (Japanese).

攻撃を受けた日本総領事館、中国国旗に換えられる
映像
UPDATE: Chinese protestors attack Shanghai Japanese Consulate, put up a Chinese flag:

Detailed video of Shanghai demonstrations (Japanese)

More pictures of the demonstration (With a nice Engrish wording of the Japanese reaction: “Holding the Beijing Olympics is impossible.”)

Saru, all bets are off: the protests went ahead on Saturday despite claims by the CCP that they would keep them in check. From Japan Today:

Thousands protest in China; Japan’s consulate, restaurants in Shanghai attacked

Thousands of Chinese marched on the Japanese Consulate General in Shanghai on Saturday, hurling bottles and other objects as they accused Japan of distorting its aggression against China before and during World War II, and calling for a boycott of Japanese goods. Protesters vandalized three Japanese-themed restaurants before breaking at least nine windows at the consulate. They also broke the cash register at a “shabu-shabu” restaurant in Shanghai’s prime shopping district.

Unless they get out of hand, the protests don’t seem to mean much by themselves. I am interested to see what Japan’s reaction to all this will be.

Japanese Chinese food chains to open stores in China


Gyoza No Ohsho　(餃子の王将 — Their gyoza are “Oh-sho” delicious!） was one of my favorite Chinese food places when I was living in Kyoto. Cheap sets, good food, and plentiful locations! My favorite was the ramen set: it included ramen, karaage, gyoza (of course), AND fried rice. Man was I full.

The branch right outside the Ritsumeikan campus was owned by a die-hard Beatles fan — he decked out his store with volumes upon volumes of manga (lots of ashita no joe, hajime no ippo, and captain tsubasa), rock ‘n’ roll memorabilia, and Beatles music (more often Beatles covers, actually) on the old-school stereo system he had set up. I was saddened to see one day that the whole place had been swept clean of any differentiating marks, and when I returned to Kyoto earlier this year it was “closed for repairs”.

BTW, Ohsho is some kind of mahjonng term, so the fact that they named a Chinese food chain after a mahjonng reference says something about what Japanese people think of when they think of China… what I’m not sure, but it definitely says something.

So on a completely unrelated note, recently I was Google-alerted to the fact that Ohsho is planning to open its first stores overseas in — no joke — China. And their timing couldn’t be better! Nikkei has the story:

Kansai’s Chinese food chains trying their craft on home turf
“Made in Japan” Image to appeal to middle and high-class customers (March 12, 2005)

Kansai’s restaurant industry, which has been making chain stores out of ramen stands and Chinese restaurants, continue to extend their businesses into China. At 10-30 yuan per customer (13 JPY), they plan to charge twice the amount of local restaurants. Reversing their low-price strategy for the Japanese market, the chains intend to exploit their Japanese image to target middle and upper class consumers. Escaping from the shrinking restaurant market in Japan, they are attempting to succeed in the home of Chinese cuisine.

In addition to Osaka Ohsho (opening in Shanghai, offering izakaya food as well, plans to franchise up to 25 stores) and “Bikkuri Ramen” (opening in Tsingtao, offering curry and donburi) which is famous for the 180 yen ramen bowl, Gyoza Ohsho is also opening a store in Dalian. They plan to offer grilled gyoza (generally not available in most of China), ramen, fried rice, and other items directly from the Japanese menu. They will consider expanding the chain after viewing results from the first store.