Chinese Central Bank

The Chinese central bank today raised its benchmark interest rate by 18 bp to 6.57% from 6.39%. That was the second interest rate hike this year. The Chinese government IS looking to curb inflation ,and keep their GDP growth at, or, below 10%.

The Chinese government also announced that it is widening the trading band for the yuan against the dollar to 0.5% from 0.3%, thus allowing the yuan to move in a wider range --and appreciate another notch.
The action was taken ahead of meetings next week between Treasury Secretary Paulson and Chinese officials. The yuan has risen modestly this month ahead of the Paulson meetings.

The yuan on Thursday posted a new 13-year high. The Chinese yuan has now appreciated by a total of 7.2% in the past 2 years since the

China in July 2005 - started to allow the yuan to appreciate.
The stronger yuan has not made an impact on their trade surplus because the yuan is still likely undervalued by as much as 20%.

China has $1.2 trillion in forex reserves, and is holding $420.2 billion of U.S. Treasuries, making it the second biggest foreign holder after Japan.

China and US officials today will begin their 2-day talks in their so-called “Strategic Economic Dialogue.” Treasury Secretary Paulson initiated this dialogue at the beginning of his term with the idea of providing a formal arena for the US & China to exchange ideas on economic cooperation, and more explicitly for the US to have a forum to apply pressure on trade, and yuan issues. Chinese Vice Premier Wu Yi will lead the Chinese contingent. Fed Chairman Bernanke will also participate in some of the meetings.

The Chinese yuan today rallied up +0.2%
The Chinese yuan is appreciating to a new 13-year high, and has now appreciated by a total of 8.1% in the past 2 years since the Chinese government in July 2005 started allowing the yuan to appreciate. However, the stronger yuan has not made an impact in the Chinese trade surplus, which reached a record $232.5 billion in 2006, up from $201.5 billion in 2005. The yuan is undervalued by as much as 20-30%.

WASHINGTON, May 24
U.S. President George W. Bush, at the White House press conference on Thursday, said thee China-U.S. Strategic Economic Dialogue is "important" and there has been some progress achieved at the dialogue.

"This is an important dialogue. And it's one that I thank the Chinese government for engaging in," Bush said.

Bush met with Chinese Vice Premier Wu Yi in the White House Oval Office on Thursday, and asked her to pass a message to Chinese President Hu Jintao that he appreciates China's willingness "to work with strategic dialogues in order to put in place the type of measures that reflect a complex relationship."

Bush also said that the United States highly appreciates its relationship with China.

President Bush made the remarks after the second China-U.S. Strategic Economic Dialogue, co-chaired by Chinese Vice Premier Wu Yi, and U.S. Secretary of Treasury Henry Paulson, concluded on Wednesday.

During these two-day closed-door talks in Washington, top economic officials from the two countries, including dozens of cabinet ministers, discussed topics ranging from areas of service, investment, and transparency, energy, and environment, as well as growth balance, and innovation.

Both sides reached a verdict on how to move forward in financial services, civil aviation,energy, and issues relating to the environment, as well as signing a number of specific agreements.

" Steep Yuan Appreciation Would injure China's economy "

Vice Premier Wu Yi said, jestering that China will not give in U.S. demands for faster gains to ease the American trade deficit.
Wu said the yuan's value is not the reason of the U.S. deficit at a banquet in Washington attended by U.S. Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben S. Bernanke.

Vice Premier Wu concluded two days of talks with Paulson yesterday aimed at easing U.S.-China tensions initiated also by last year's record $232.5 billion U.S. trade deficit with China.

U.S. legislators have pledged to proceed with sanctions against Chinese imports unless the yuan rises mchh more quickly.

The yuan changed slightly at 7.6523 against the dollar as of 10:22 a.m. in Shanghai, compared with 7.6519 late yesterday. It has risen 8 % against the U.S. dollar since July 2005. Democratic Representative of Michigan, said yesterday the yuan is undervalued by as much as 40 %.

President Bush told reporters the U.S.-China relationship was ``complex'' and that both nations have to work closely together to ease economic static. The U.S. is ``watching very carefully'' China's procedure with its currency, President Bush said, and is prodding China's government to open its capital markets to international financial institutions.Paulson wasn't able to persuade Wu to allow foreign banks to own more than 25 percent of a domestic bank.

On the edge of an even gloomier forecast from former Federal Reserve Chairman Alan Greenspan, equity shares in China fell from a record close just the day before. Noting that Chinese equities may undergo a “dramatic correction”, Greenspan stated that the current rally “is clearly unsustainable”.

Are you familiar with the Chinese's penchant for lucky number 8's and unlucky number 4's? They are saying that private individuals make up 60 to 80% of traders in China and that most of these traders are influenced by those two numbers. For example, if a stock is trading at 44.44 it is highly unlikely that anyone will buy it but at 8.88 everyone will want part of the action.