Yuan Falls on Speculation China Curbing Gains to Aid Exporters
2008-10-14 10:12:33.760 GMT

By Judy Chen and Belinda Cao
     Oct. 14 (Bloomberg) -- The yuan fell against the dollar,
after yesterday climbing for the first time in four days, on
speculation the government will favor a stable currency to help
exporters weather a slump in global demand. Bonds rose.
     Overseas sales will be affected as the U.S. slips into
recession and the Japanese and European economies slow, the
official Shanghai Securities News reported today, citing Fan
Gang, an adviser to China's central bank. Exports climbed 21.5
percent from a year earlier in September and the trade surplus
reached a record $29.3 billion, the government said yesterday.
     ``The worst of the crisis hasn't been reflected in
yesterday's export data,'' said Yang Shengkun, a currency
analyst in Beijing at China Citic Bank Co., a unit of China's
biggest state investment company. ``The central bank will stick
with a stable yuan for the rest of this year.''
     The yuan dropped 0.19 percent to 6.8390 a dollar as of 5:30
p.m. in Shanghai, according to the China Foreign Exchange Trade
System. It yesterday gained 0.15 percent, after sliding 0.28
percent in the previous three days.
     Global turmoil will have ``little direct'' impact on
China's finance industry, instead it will indirectly affect
exports and foreign exchange markets, the Chinese-language
Shanghai Securities News cited Fan as saying. Fan is the only
academic to sit on the central bank's monetary policy committee.

                     Currency Reserves

     China's foreign-exchange reserves rose 32.9 percent to
$1.906 trillion at the end of September from a year earlier, the
People's Bank of China said on its Web site today. The increase
of about $97 billion over the third quarter was down from a $127
billion gain in the three months through June.
     ``More exporters chose to convert earnings to the local
currency at a later time due to the increasing depreciation
expectation, which caused the slowdown in expansion of
reserves,'' said Liu Dongliang, a Shenzhen-based foreign-
exchange analyst at China Merchants Bank Co., the country's
sixth-largest lender.
     The central bank reined in yuan appreciation after the
currency's 6.6 percent gain in the first half of 2008 eroded
exporters' profits. The yuan, which has been managed against a
basket of currencies of major trading partners since a dollar
peg ended in 2005, has gained 0.2 percent versus the greenback
since the end of June.

                            Bonds Climb

     Government bonds advanced after the central bank let the
yield on one-year bills to drop to the lowest this year in open-
market operations today.
     The People's Bank of China sold 60 billion yuan of bills
due in one year at a yield of 3.7 percent, 0.2 percentage point
less than that on similar-dated securities it offered a week ago.
The decline is the fourth time in a row after the central bank
cut lending rates in September for the first time in six years.
     China's bonds reached a record high yesterday following a
1.54 percent surge last week, the biggest this year, according
to an Asian local-currency debt index compiled by HSBC Holdings
Plc.
     ``The yield on the one-year bills, a benchmark rate in the
money market, will stabilize soon, after the central bank
allowed quick declines in the last few weeks to match the recent
cut to deposit rates,'' said Nie Shuguang, a fixed-income
analyst at Industrial Bank Co. in Shanghai. ``Economic
fundamentals still support a rising debt market in a longer
term.''
     For a second time in a month, the central bank trimmed the
one-year deposit and lending rates on Oct. 8 by 27 basis points
in a bid to avoid an economic slowdown amid global financial
turmoil. The one-year deposit rate was 3.87 percent and the
lending rate stood at 6.93 percent after the reduction.
     The yield on the 3.68 percent bond due Sept. 2018 dropped 5
basis points to 3.1 percent, according to the China Interbank
Bond Market. The price rose 0.44 per 100 yuan face amount to
104.93. A basis point is 0.01 percentage point.

For Related News:
Top currency news: TOP FRX <GO>
News on China's currency: NSE YUAN IN HEADLINE <GO>
Stories on China economy: NSE CHINA ECONOMY IN WIRE: BN <GO>
Stories on China bonds: NSE CHINA BOND IN WIRE: BN <GO>

--Editors: James Regan, Sandy Hendry

To contact the reporters on this story:
Judy Chen in Shanghai at +86-21-6104-7047 or
xchen45@bloomberg.net
Belinda Cao in Beijing at +86-10-6535-2316 or
lcao4@bloomberg.net.

To contact the editor responsible for this story:
Sandy Hendry at +852-2977-6608 or
shendry@bloomberg.net.

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