The exact allocation of China’s USD2.5trln in FX reserves is a closely guarded secret.  One of the only public sources of information on the subject is provided by the US Treasury’s TIC data.  The TIC data represents the Treasury’s attempt to keep track of foreign investments in US securities.  It provides, amongst other things, a headline reading on China’s holdings of US Treasuries.

TIC data for June came out yesterday and it made interesting reading - showing China’s holdings of Treasuries down USD24.0bln to USD843.7bln, from USD867.7bln in May.  Even worse, the fall in holdings came mainly from net sales of long term notes and bonds, not short maturity T-bills. 

What does it mean?  Is China finally loosing faith in the US?  My view is that the monthly TIC data does not do a very good job of capturing China’s purchases and that we need to wait for a few more months data, and maybe even the Treasury’s annual survey, to see what is really going on. 

But Zhang Ming of the Chinese Academy of Social Sciences thinks this might be a turning point in the allocation of China’s FX reserves.  This is my translation of the main points of an opinion piece he ran in the 21st Century Business Herald today:

‘The latest TIC data shows China’s holdings of US Treasuries down for a second month.  Even more striking is that most of the fall comes in our holdings of long term Treasuries - which are more risky investments. 

This might mark a turning point in China’s allocation of its FX reserves.  It might mark the point when Chinese investors came to understand the risks of investment in US Treasuries from inflation in the US or a depreciation of the US dollar.

At the moment, markets are focused on the risks in Europe.  But actually, in the long term perspective, the risks in the EU are less than they are in the US.  The average fiscal deficit and debt/GDP ratio for eurozone members is lower than in the US.  And whilst the eurozone countries have plans for fiscal retrenchment, the US fiscal deficit is set to grow.

Japanese sovereign debt obviously also has risks attached - an ageing population and high debt/GDP ratio are not positives for the Japanese economy.  But these are not risks that are correlated with risks in the US and so diversification of foreign investments in this direction is also a sensible option.’

You can see the original piece in Chinese here.

EU-China Relations, Financial Crisis, International Relations, US-China Relations

Last year, CNY9.5trln in new loans propelled the Chinese economy through the global financial crisis, its growth trajectory bent but unbroken.  This year, it is time to count the cost, and with inflation in abeyance, concern has focussed on risks associated with the massive quantities of loans issued to local government investment vehicles.

The China Banking Regulatory Commission has recently concluded a review of the extent and quality of loans to these murky institutions.  The headline figure of CNY7.66trln in loans, with CNY1.7trln (23%) at danger of default has been widely reported. 

At first sight, CNY1.7trln in potential bad loans is nothing much to worry about.  With total loans in the Chinese banking system currently adding up to more than CNY50trln, even if all those loans do go bad it would still add just over 3% to the total for non-performing loans. 

That, however, is not the end of the story.  An article in the latest edition of Caixin has a few more details, revealing that CN2trln of the total are regarded as sound, with the local government investment platform well placed to repay both capital and interest.  But CNY4trln of the loans will only be able to be repayed if the borrower receives additional credit.  If some of those loans go bad too, that would add a few more percent onto the non-performing loans total.

Even with this extra wrinkle, it looks to me like annoyance rather than apocalypse.  I’m sure that the Chinese government would regard even 10% non performing loans on the banks’ balance sheets as a price worth paying for pulling the economy back from the brink of the financial crisis.  It is certainly a considerably smaller number than in the early 2000s, and even then the government was able to clean up the mess without too much difficulty. 

You can see the Caixin article here.

Banking, Financial Crisis, Regional

I have an opinion piece in the South China Morning Post today on Beijing’s latest moves on the CNY and the implications for this weekend’s G20.

SCMP subscribers can read the piece here.

Everyone else can read it below:

US Might Miss an Open Goal on the Exchange Rate at G20 Summit

China’s hapless soccer team might not have qualified for the World Cup, but when it comes to playing the game of global politics, its leaders have shown considerably more finesse.  So whilst China’s soccer eleven are polishing their boots, China’s economics A-team is on the way to Toronto for the latest summit of the G20.  There has not been this many Chinese faces arriving in Canada since Hong Kong’s reunion with the mainland.

One week ago, it looked like the latest meeting of the world’s self appointed high council on all things financial crisis would be a festival of China bashing, with the exchange rate the main focus of attention. 

Back in April, when the US Treasury delayed publication of a critical report on China’s exchange rate regime, the unspoken trade off was that China would start the yuan appreciation ball rolling ahead of this week’s pow wow.  The attack dogs in the US Congress latched firmly onto that informal deadline, threatening that if there is no movement on the exchange rate by the G20, they will take matters into their own hands.  If China had not acted last weekend, the US would have been compelled to go on the offensive at Toronto. 

The European debt crisis has Brussels gazing at its own bureaucratic navel.  But with emerging markets like Brazil and India adding their voices to the paean of protest, and rumblings of discontent from East Asian neighbors, China looked set to find itself isolated at the international negotiating table.

By signaling the end of the yuan’s 22-month peg to the US dollar, China has done just enough to calm the storm.  In the few days that have followed the announcement, the yuan has been little moved.  A 0.2% appreciation against the dollar will hardly be enough to bring the competitive shine back to manufacturers in the US rust belt. 

But China has won itself the benefit of the doubt.  The same voices that were, last week, raised in protest, are now offering a cautious welcome for Beijing’s promise of increased flexibility.  The US Congress remains on the war path.  But China has given the Obama administration the fig leaf it needs to justify its softly softly approach to dealing with Beijing, and done just enough to ease tensions in relations with other emerging markets. 

Leaders in the US and elsewhere want China to translate its words into actions - they want real change not just a commitment to change.  But for now, Beijing has moved the exchange rate to where it wants to be - off the G20 negotiating table.

A careful examination of the fine print in Beijing’s announcement on exchange rate reform, however, suggests the US would be well advised not to allow the yuan to slide too far from view. 

China’s trade surplus might have come in at a tidy USD198bln in 2009, but that is still way down from almost USD300bln in the 2008.  Beijing has taken this as evidence that the trade account is coming close to balance of its own accord, and the need for further adjustment of the exchange rate is limited.  The announcement also makes clear that what adjustment there is will be gradual, to give the export factories of the Pearl and Yangtze river deltas time to adapt.  When it comes to exchange rate reform ‘limited’ and ‘gradual’ are not the words that Washington DC wants to hear. 

Even more alarming for the US, China has made it clear that in the future, the direction of travel for the yuan against any particular currency could be down as well as up.  The new plan for the yuan might mean continued stability, or even depreciation, against the dollar, at the same time as the currency appreciates against the euro, the Brazilian Real or the Indian Rupee. 

If Brussels, Brasilia, and New Delhi find the yuan’s new flexibility means appreciation against their own currencies, they will see little reason to support the US on the need for appreciation against the dollar.  By conceding to US demands for enhanced flexibility of the exchange rate, China might have succeeded in turning the international consensus on the need for yuan appreciation on its head.  If it is the US that finds itself isolated at the negotiating table at the next G20, scheduled for Korea in November, they might regret missing an open goal in Canada.

Exchange rate, Financial Crisis, International Relations, Trade, US-China Relations

China and US leaders are about to kick off this year’s meeting of the Strategic & Economic Dialogue with opening remarks.  I have an op ed on the talks in today’s South China Morning Post.

SCMP subscribers can read the article here, or I’ve pasted it below:

Don’t Mention the Currency

A sunk ship in South Korea and a sinking economy in Greece may be enough to scupper hopes of movement on the exchange rate at the US China Strategic & Economic Dialogue

China is a currency manipulator and unless they change their wicked ways we will take them to task: that was the message from Senator Barack Obama on the 2008 Presidential campaign trail.  Back then, the exchange rate was 6.83 yuan to the dollar.  Almost two years and one global financial crisis later, the exchange rate is still 6.83 yuan to the dollar, and President Barack Obama and his team have fallen strangely silent.

One reason for that silence might be that an informal understanding between Beijing and Washington has been reached.  Back in April, the US Treasury decided to delay publication of a report to Congress on international exchange rates - a report which might have officially designated China as a currency manipulator.  That decision came shortly after a visit to the US capital of one Zhong Shan, China’s vice Commerce Minister.  Whispers from Washington suggest that, though no concrete assurances were given, Zhong’s visit did at least result in a meeting of minds.  The US would dial down the rhetoric on the exchange rate and China would proceed with appreciation, at its own pace, but within a reasonable time frame.

For many in Washington, a reasonable time frame meant before the next meeting of the Strategic & Economic Dialogue - the annual US China talk fest which is set to take place in Beijing on the 24th and 25th May.  But with the talks about to commence, expectations of an early resumption of appreciation appear increasingly misplaced. 

Why the delay? Look no further than the European sovereign debt crisis.  The EU might have belatedly mounted its white horse to ride to the rescue of the Greek damsel in distress.  But the episode has rung alarm bells in Beijing, suggesting that the global financial crisis has yet to run its course and the time for the resumption of yuan appreciation is not yet right.

If a resumption of appreciation in advance of the meeting was too much to hope for, maybe a little table thumping in the meeting itself will do the trick? 

Probably not.  On the US side it is the State Department that’s calling the shots, and that means a focus on the strategic, not the economic, half of the Dialogue.  The sinking of a South Korean navy ship, with the deaths of 46 sailors on board, has raised the temperature on North Korea.  With an official investigation placing the blame squarely at the door of Pyongyang, shaping a response has risen to the top of the agenda for the Dialogue.  And with the focus of attention elsewhere, there is little hope of progress on the exchange rate.  Officials on both sides have already begun to talk the issue down.

A sinking economy in Greece and a sunk ship in South Korea might be enough to scupper hopes of a move on the exchange rate at this week’s Dialogue.  But excuses will do little to appease an increasingly vocal domestic lobby in the US.  Trade unions, industrial interests, and a Congress spoiling for a fight might have bought into the Treasury’s softly softly approach in the run up to the Dialogue.  But continued inaction may well use up scarce supplies of patience. 

The Treasury has signaled that it wants to see a multilateral solution to the problem - hinting at a resumption of appreciation ahead of the meeting of the G20 in Canada in June.  But if no action is forthcoming by then, domestic interest groups might start to ask what President Obama has done to make good on his campaign trail promises.

EU-China Relations, Exchange rate, Financial Crisis, International Relations, US-China Relations

When will China raise interest rates?  That, alongside the question of the exchange rate, is the key focus for market attention.  In the view of Fudan University economics professor Sun Lijian, now is not the time.  This is my translation of the main points from his recent blog posting:

‘Today, China is faced with the problems of imported inflation from high commodity prices and a bubble in the property sector.  That is a similar situation to the one we faced in the second half of 2007 and first half of 2008.  Back then, academic and government economists were united in calling for higher interest rates.  What is the difference now?

First, the real economy is growing fast, but it’s a feverish, not a healthy growth.  With the real economy still in recovery phase, using the blunt instrument of interest rates to raise the cost of capital might actually have the impact of forcing capital out of the real economy and into the capital markets - making the property bubble worse.  Quantitative measures - like the reserve requirement ratio - are the best way to clamp down on asset price bubbles without impacting the recovery in the real economy.

Secondly, raising interest rates would not be interpreted by the markets simply as a tightening of monetary policy, but rather be seen as a withdrawal of the stimulus.  If panic gripped the markets, the good work of the twin fiscal and monetary stimulus might be undone.  At the same time, by increasing the interest rate differential with the USA, raising rates might attract hot money inflows, putting more pressure on the currency to appreciate.

Third, for Asian countries - Thailand, Korea, Indonesia - the problem is containing property bubbles caused by rapid inflows of capital.  Containing inflationary pressure and asset bubbles resulting from capital inflows is the most important economic problem facing Asian governments, including China.  Raising rates would attract more capital inflows and make that job more difficult.

Summing up, the risks to the real economy, worsening asset price bubbles, putting more pressure on the exchange rate, and attracting capital inflows suggest that the government should focus first on the use of quantitative tools (the reserve requirement ratio, lending guidance to banks), and that the time for raising interest rates is not yet right.’

You can see the original here.

Exchange rate, Financial Crisis, Monetary Policy, Property

How serious a problem is China’s property bubble?  King of the China bears Andy Xie thinks its pretty serious, and on Friday I had the chance to hear him presenting his views.  The main points from the presentation are:

‘The Chinese response to the financial crisis has followed that of the US.  But where in the US a financial meltdown required near zero interest rates to keep the banking system solvent, in China there was no problem with the stability of the financial system.  Very low interest rates were inappropriate for the Chinese economy.  With the Chinese banks motivated to lend to appease their shareholders in Hong Kong, and the property sector motivated to borrow by very cheap rates, a year and a half of very relaxed monetary policy have made the Chinese property sector bubble bigger.

Property in China is a government business.  Many property sector developers are owned by local government.  For those that are not, the cost of land and taxes are so high that they are effectively just middle men for the government.  Property is the most important source of government revenue

The government is caught in a vicious cycle.  Property prices rise, which means that property developers demand more land to build on.  To meet that demand for land, local government has to clear residents away from more and more areas.  Residents see that to buy a new home, they will need large amounts of money.  They demand huge amounts of compensation - Xie mentioned a household in Shanghai that received CNY1mln compensation for being forced to leave a 10 metre square apartment.  The government is now massively in debt as a result of the high cost of compensation, and so needs to sell the land on at high prices to recoup its costs.  Property developers buy the land at high prices, and so can only turn a profit by selling high end property at high prices, and the cycle continues.

Land is now so expensive that only state owned enterprises, that face no real budget constraint, are willing to buy.  With state owned enterprises the only buyer, the property sector is just a series of transfers between different parts of the government.  State owned banks lend money to state owned enterprises who use it to buy land from the state. 

Local governments are waiting for private sector property developers to buy land.  Their attitude is that private property developers only exist with their approval, so their money is really government money, and can be extracted at will.  Private property developers might look big and powerful, but according to Xie they are being squeezed by the government, with profit margins of 50% a few years ago, 25% today, and non-existent if developers are forced to buy land at today’s high prices.

This state of affairs can’t continue for much longer.  In Hong Kong, property is expensive but other taxes are low.  In China, property is expensive and other taxes are high.  The middle class - grauates of the 1990s who are now earning CNY10-15K/month - are getting squeezed.  This is the most able and vocal of China’s social groups.  Xie pointed out that journalists are also in this group, which is why there is so much negative press attention on the housing issue.

Inflation will be the pin that pricks the bubble.  Xie believes that China is entering an age of high inflation.  Xie pointed out that in the 1950’s, Chaiman Mao encouraged families to have multiple children to boost the Chinese population.  ’Hero mothers’ that had 10 children could even meet Mao.  In the 1970s, the children of the resulting baby boom hit their teenage years.  The result was the cultural revolution.  In the 1990s, they entered the labour market and excess labour supply kept wages (and inflation) low.  Now they are leaving the labour market, wages will start to rise and with them inflation. When inflation returns, the Chinese government will be forced to raise interest rates.  When borrowing becomes more expensive, house prices at today’s high levels will not be sustainable, and there will be a sharp correction.  Xie’s intuition is that this will come in 2012.’

Interesting stuff.  I had not heard the argument about compensation for relocation before, and don’t think it is as important as an explanation for high land prices as local government’s need to close the gap in their finances.  But in general, a compelling account of the drivers and motivations of the key players in the most important sector of the Chinese economy.  Also fascinating argument about the role of demographics and Mao’s ‘hero mothers’ in China’s recent social and economic history.

Banking, Financial Crisis, Fiscal Policy, History, Labour markets, Monetary Policy, Property, Social Policy

Local government debt is back in the headlines.  Today, I attended a presentation by Prof Victor Shih, who has just finished some fairly extensive research on the debt taken on by local government investment entities.

The starting point for Prof Shih’s argument is that last year’s massive economic stimulus was massively underfunded by the central government.  Local governments were left with colossal spending obligations but no obvious way to pay for them.  The solution for many local governments was to set up local government investment entities to borrow the money on their behalf.

The process is quite simple.  Local governments set up a financial company and give it some land.  Using the land as collateral, the financial company, which is wholly owned by the local government, borrows money form the banks.  That money is used to fund local government’s investment projects.

Prof Shih’s calculations suggest that money owed by these finance vehicles now adds up to around CNY11trln - or about 1/3 of Chinese GDP.

This money will now have to be paid back.  If, as seems likely, the revenue stream from the projects in which it has been invested are not sufficient, some other way will have to be found.  Land sales, higher taxes, or reliance on a bail out from the central government are the most likely options.

The government might have kept the majority of economic stimulus spending off balance sheet, but the bill will still have to paid.

Chinese economists are also alive to the problem of local government debt.  These are the main points from a recent blog post by Guo Tianyong:

‘Many of the projects funded through local investment vehicles are not commercially viable.  A visit to local areas revealed projects that will not generate revenue for 5 or even 10 years.

That will mean that responsibility for repayment falls back at the door of local government, which has acted as guarantor of the loans.

If the real estate market wobbles and land prices fall, the repayment ability of local government will also come into question.

Properly understood, local government finance risk and bank credit risk are now two sides of the same coin.

A more sensible approach for the future would be for local government to invite bids from the private sector to build local infrastructure.  If projects are commercially viable, there should be no problem.  If the project fails, the private sector is left with the debt, and its no burden for the government.’

You can see Guo Tianyong’s blog post here.  Prof Shih’s research has been getting a lot of play and you can see a summary of it here.

Banking, Financial Crisis, Fiscal Policy, Infrastructure, Property, Regional

I Just finished reading an article in the official magazine Liaowang on the growing wealth of China’s super-rich, the sources of their fortunes, and the social implications of a  widening divide between the haves and the have nots.  This is my translation of the main points:

‘Mr Chen sits in his CNY200,000 chair in his CNY12m house on a fashionable street in Beijing.  This is not Mr Chen’s primary residence, but rather a home he keeps for meetings with business associates and officials.  He points to antique carvings of dragons that line the walls.  ‘I’m not an expert collector’ he says, ‘I just think they are good fun.’

Mr Chen and his type, the company directors, high level managers, and professional investors who form China’s super-rich, have attracted increasing attention in recent years.  In the West, the economic crisis of the last year eroded the wealth of the super rich, but in China this group has seen their wealth increase over the course of the crisis.

According to Forbes, in 2009 the threshold to enter the list of the 400 richest people in China was CNY2.05bn, up from CNY1.22bn in 2008, and 40 people had personal wealth of CNY7bn, up from 24 people in 2008.

China’s super-rich are concentrated on China’s East coast, especially in Beijing, Guangdong, Shanghai, Zhejiang and Jiangsu - where around 60% of China’s richest individuals live.

For China’s super-rich, the road to riches was bright and clear.  The most important route is the real estate market, with the capital market in second place.  In the US, according to Forbes, there are just 50 real estate moghuls amongst the 400 richest names in the country.  In China, that number is 154. Of China’s richest 10 individuals, 5 are involved in real estate.

Hu Run, an expert in China’s rich-list, says that in China the real estate sector surpasses manufacturing, finance, and investment as the way to the top.  Hu notes that China’s special system for controlling land rights, and the rapid pace of urbanisation explain why fortunes can be made in the real estate sector.

Becoming rich in China can also happen more quickly than in the US.  According to Hu, in China the average age of individuals with a net worth of CNY10m is just 39, and of individuals commanding CNY1bn, 43 - much younger than overseas.

In one way, getting rich quick is a sign of the vibrancy of the Chinese economy.  But in another, it points to iniquities in the Chinese economy.  One financial adviser with whom we spoke said that the super-rich clients with whom he worked typically fell into one of three categories: 1) those who relied on power to amass wealth 2) those who had ‘grey’ sources of income and 3) mining magnates and people with monopoly control over a sector of the economy.  He estimated that only about 30% of the super-rich has achieved their wealth through hard work.

The excessive concentration of wealth is an early warning signal of broader problems with the distribution of resources in a society.  Zhejiang Academy of Social Science Professor Yang Jianhua has been researching this question for 10-years.

Prof Yang notes that the experience of other countries is that in the process of development, income distribution gets worse before it gets better.  Specifically, in the income range of USD1000-3000/capita income distribution becomes more unequal, after annual income/capita exceeds USD3000 distribution starts to become more equal.  But the situation in China defies this pattern.

Prof Yang’s research into the distribution of income in Zhejiang shows that even though annual income has now reached USD6000/capita, the gap between rich and poor has not started to narrow, and in fact continues to widen.  Prof Yang notes that the distribution of income in China today does not resemble a pyramid, with a broad base narrowing gradually toward a peak, but rather an inverted ‘T’ with a massive base of people struggling to get by, and a tiny tip of people who control a disproportionate amount of wealth.

One scholar, who was not willing to reveal his name, said that today there were a growing number of cases where government officials, their families or agents controlled access to resources and used them to generate personal wealth.  This conversion of public power into private wealth is a new challenge for the anti-corruption authorities.

China’s new rich do not appear to have strong social or charitable convictions.  One financial advisor with whom we spoke said that many of the super-rich were desparately seeking government offiice, but they did so only as a means to amass more wealth or protect their interests. ‘They don’t believe in duty, only in money’ he said.’

By coincidence, I just finished reading ‘China’s Trapped Transition’ by Minxin Pei.  There is a lot in this article which resonates with Pei’s bleak vision of today’s China:

-The monopoly control of economic rents by those with political power

-An accelerating effort by this privileged group to turn their power into wealth, indicating a lack of faith in the future and an attempt to cash in as quickly as possible

-A collapse in the ideological values which might provide a check on the abuse of power

You can see the original article here.

Communist Party, Financial Crisis, Property, Social Policy

Did anyone notice a new world order emerging at the recent meeting of business leaders in Davos?  Me neither.  But we must have been looking in the wrong place, because everyone’s favourite Communist Party magazine - Outlook Weekly - saw it quite clearly.

Here’s my translation of the main points of an article on Vice Premier Li Keqiang’s trip to Switzerland, from the latest edition:

‘The summit at Davos was happily timed to coincide with two ’saying goodbye to the old and welcoming the new’ moments.  The first was the end of the 00’s and the beginning of the 10’s.  The second was the waning of the old Western dominated world order, and the dawning of a new world order, where large emerging countries will have greater power and influence.

The world is becoming multi-polar, and this process is leading to rapid reform of global systems of governance.  International power and influence is shifting from the West to the East and from the North to the South.  Western countries are being compelled to share their influence with emerging countries in the East.

After the financial crisis, the centers of global influence are the US, EU, China, Russia, Japan, India, and Brazil.  ‘One super power many strong powers’ （一超多强）has become ‘One super power six strong powers’ （ 一超六强).  The US might still be the only super power, bu the six other powers now includes four developing countries.’

The article goes on to set out China’s ‘four principles’ for global economic governance, as set out by the Chinese representative at the G8 meeting in September 2009.  These are:

1. The objectives of governance: to push forward economic globalisation, with a focus on mutual benefit and win-win solutions

2. The subject of governance: all countries should participate on an equal basis in global governance

3. The process of governance: the process should be consultative, with the interests of all countries - especially developing countries - considered

4. The system of governance - at different levels and in different spheres, to increase the representative nature of global governance, a new framework for economic governance should be constructed

Finally, the article notes that at a briefing for Chinese media ahead of Vice Premier Li’s trip, a spokesman for the Foreign Ministry added his own three principles for reform, which can basically be boiled down to a greater role for developing countries in global governance, and respect for all countries’ right to determine their own development model.

The main points and general tone of the argument in this article certainly supports the idea that post-crisis China has growing confidence about its weight in world affairs.  The authors use of the term ‘one super power six strong powers’ is also interesting.  The term ‘one super power many strong powers’ has been in China’s international relations vocabulary since the end of the cold war, expressing the hope that multiple smaller powers would be able to check the influence of the US.  The transition from ‘many strong powers’ to ’six strong powers’ might be wishful thinking on the part of China, but also indicates some crystallisation of thought in Beijing as to who those ‘many strong powers’ might be.

China - Africa relations, China - Latin America relations, EU-China Relations, Financial Crisis, IFIs, International Relations, US-China Relations

Late last year, the 3rd Quarter Monetary Policy Report of the People’s Bank of China sparked some excitement by changing familiar wording on the exchange rate policy.  In particular, the Central Bank dropped the reference to the ‘basic stability’ of the exchange rate.  This lead some to speculate that the Chinese authorities might be about to allow the CNY to resume its stalled appreciation.

In fact, the significance atttributed to the omission of the ‘basic stability’ phrase was excessive.  The change in wording appeared on page 46 of a 47 page report.  And China is hardly likely to strip away the main support for exporters at a time when the recovery is still  in its early stages, external demand remains weak, and the focus remains on protecting growth and jobs. 

Today, almost as if it knew it was missed, the committment to the ‘basic stability of the exchange rate’ has reappeared.  In a statement on its website following its annual work meeting, the People’s Bank says that in 2010 they will: ‘according to the principles of self-initiative, control, and gradualism, continue to perfect the CNY exchange rate mechanism, and maintain the basic stability of the CNY within an appropriate and balanced level.’ 

This exactly mirrors the language in 2009’s 2nd Quarter Monetary Policy report.  In short, the message from the PBOC appears to be that no change in China’s exchange rate policy is imminent.

You can see today’s statement from the PBOC here.

EU-China Relations, Exchange rate, Financial Crisis, Monetary Policy, US-China Relations