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In a  release, that is stunning in its own size, the People’s Bank of China released statements confirming that the world’s fastest growing economy has now reached well above $1 trillion in FX reserves.  Rising to a record $1.2 trillion, overall reserves were boosted by an increase of $136 billion in the first quarter of 2007, the single biggest rise in any single quarter.  <Full Story See Below>

Chinese FX Reserves Reaches $1.2 Trillion

In a  release, that is stunning in its own size, the People’s Bank of China released statements confirming that the world’s fastest growing economy has now reached well above $1 trillion in FX reserves.  Rising to a record $1.2 trillion, overall reserves were boosted by an increase of $136 billion in the first quarter of 2007, the single biggest rise in any single quarter.  As a result of the recent report, it has become increasingly clear that China continues to be amassing larger portions of dollars and other currencies in a feeble attempt to keep the domestic currency restrained.  Incidentally, the notion is combining with a ballooning trade surplus in supporting plausible and rampant inflationary pressures in the country.  Likely forcing central bankers into contemplating further increases in the benchmark lending rate and reserve ratio, the figure is staggering and supports China’s standing as the world’s largest holder of currency.  Subsequently, the report is also evidence that the country will likely have to consider the possibility of either floating or widening the current band which the currency trades in.  Through appreciation of the yuan, inflationary pressures will be softened, helping the to alleviate concerns purported by the People’s Bank of China.  However, given the staunchly conservative approach by policy makers, the option still remains an option on the wider horizon.

Chinese Officials Withdraw G7 Attendance

Sparking speculation in mid week action, Chinese officials announced plans not to attend the upcoming round of both IMF and G7 talks.  However, shortly following the rescinded invitation, the headline government did announce the attendance of notable understudies to heads of state.  Instead of China’s central bank governor and finance minister attending the meeting, the country will be represented by both Vice Finance Minister Li Yong and Central Bank Vice Governor Hu Xiaolian.  Both representatives are expected to have limited participation in the talks, with any market moving rhetoric being left to outside residual talks.  The situation sparked rampant speculation over the possibility that the failure to attend was retaliatory to the recent spate of sanctions that the US is seeking.  Namely, US representatives are placing trade sanctions on glossy paper imports from China as well as seeking further punishment over lax piracy laws in the country.  Concerns, however, were dispelled when it came to light that both representatives were absent through the seasonal round of talks this time in 2005, making this the second missed meeting in three years.  Both government officials cited political obligations at home in explaining their absence.

Chinese Officials Respond To Sanctions

Jawboning continued in the beginning of the week following further WTO sanctions that were filed against China.  Citing lax piracy laws that costing the US entertainment business billions of dollars, US representatives are looking to once again place tariffs as punishment on China imported goods.  In rebuttal, the Chinese Commerce Ministry stated that recent complaints by one of the country’s largest trade partners will “severely damage” trade relations between the two economies.  According to the Ministry of Commerce spokesman Wang Xinpei, “China very much regrets the decision and is strongly displeased…China has been resolute in protecting intellectual property rights.”  Incidentally, China made further advances in reform shortly after comments were made.  Recently, the government announced the repeal of a slew of tax rebates on steel exports, likely decreasing the competitiveness of the sector.  The move was widely made on contentions made by both the US and Eurozone leaders, main competitors in the global steel arena.

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