China Sees Promise in Euro But Will Wait and See
January 13, 1999 - 0:0
BEIJING For now, China is taking a wait and see approach to the euro, but many of the country's financial experts see future promise in Europe's new currency. Finance Minister Xiang Huaicheng congratulated the 11 European Union members who adopted the new currency on January 1 but failed to comment on how China was likely to change its foreign exchange reserves, the second-largest in the world after those held by Japan. He merely said, We don't put all eggs in one basket.
But, a little over a week after the launch, there are growing calls from Chinese financial experts to have a large part of the 140-billion-dollar reserves converted into euros. They want to reduce dependency on the dollar, which now makes up 62 per cent of reserves, compared to European currencies, which constitute merely 19 per cent, and the yen, which makes up just 8 per cent.
Zhu Min, director of the Institute for International Finances at the Bank of China, said he thinks it is possible that dollar holdings may be reduced to 50 per cent of reserves, while the euro may be increased to cover 35 per cent. Shen Jiru, an economist at the Academy for Social Sciences, would even like to raise euro holdings and lower dollar holdings to 40 per cent each at some stage in future.
Qiu Yuanlun, a Europe specialist at the academy, believes the euro share may be increased to cover one third of reserves within three years. Chinese financial experts believe the euro will start strongly, then weaken and then stabilize - bringing short-term risk and long-term opportunity. China could also restructure its European future debt obligations. Only two loans so far have been denominated in German marks, while all others are in dollars.
In late 1997, 55 per cent of China's foreign debt was in dollars, 27 per cent in yen and 6 per cent in European currencies. The euro could help China diversify its debt structure. China's enterprises, which on the one hand fear increasing competition from European countries strengthened by the euro, will also draw benefits from a single market with a more transparent price structure.
First, however, they will incur some additional costs for changing over computer programs and book-keeping systems to allow for the new currency. It will reduce the cost of transnational deals and it will be much easier for China to enter one unified EU market instead of the 15 it faced in the past, said Zhu Min. Trade with Europe is expected to grow further, after increasing from 13 to 15 per cent of Chinese foreign trade in a year, and make up for some of the negative effects of the Asian economic crisis.
In the first nine months of 1998, exports to Europe increased by 21 per cent against the same period in the previous year to 20.3 billion dollars. Imports from Europe grew 9.8 per cent to 13.6 billion dollars. The euro will help alleviate China's overdependence on Sino-U.S. trade and help to develop a more diversified foreign trade structure needed to increase exports, said Yang Zilin, vice president of the Industrial and Commercial Bank. (DPA)
But, a little over a week after the launch, there are growing calls from Chinese financial experts to have a large part of the 140-billion-dollar reserves converted into euros. They want to reduce dependency on the dollar, which now makes up 62 per cent of reserves, compared to European currencies, which constitute merely 19 per cent, and the yen, which makes up just 8 per cent.
Zhu Min, director of the Institute for International Finances at the Bank of China, said he thinks it is possible that dollar holdings may be reduced to 50 per cent of reserves, while the euro may be increased to cover 35 per cent. Shen Jiru, an economist at the Academy for Social Sciences, would even like to raise euro holdings and lower dollar holdings to 40 per cent each at some stage in future.
Qiu Yuanlun, a Europe specialist at the academy, believes the euro share may be increased to cover one third of reserves within three years. Chinese financial experts believe the euro will start strongly, then weaken and then stabilize - bringing short-term risk and long-term opportunity. China could also restructure its European future debt obligations. Only two loans so far have been denominated in German marks, while all others are in dollars.
In late 1997, 55 per cent of China's foreign debt was in dollars, 27 per cent in yen and 6 per cent in European currencies. The euro could help China diversify its debt structure. China's enterprises, which on the one hand fear increasing competition from European countries strengthened by the euro, will also draw benefits from a single market with a more transparent price structure.
First, however, they will incur some additional costs for changing over computer programs and book-keeping systems to allow for the new currency. It will reduce the cost of transnational deals and it will be much easier for China to enter one unified EU market instead of the 15 it faced in the past, said Zhu Min. Trade with Europe is expected to grow further, after increasing from 13 to 15 per cent of Chinese foreign trade in a year, and make up for some of the negative effects of the Asian economic crisis.
In the first nine months of 1998, exports to Europe increased by 21 per cent against the same period in the previous year to 20.3 billion dollars. Imports from Europe grew 9.8 per cent to 13.6 billion dollars. The euro will help alleviate China's overdependence on Sino-U.S. trade and help to develop a more diversified foreign trade structure needed to increase exports, said Yang Zilin, vice president of the Industrial and Commercial Bank. (DPA)