Monday, July 12, 2010

News 12th July 2010

Widening Trade surplus in China

For the past three weeks, China remained in phenomenal focus with regard to the undervaluation of Yuan. The pressure had just started building up on China, that it is again saddled with the global pressure. On 9th July 2010, China’s trade surplus increased to 20.2 billion, 140% from the previous year. The rise in exports was 44% and imports surged to 34%.
US Treasury Secretary Timothy Geithner said that US will be continuously monitoring Yuan’s appreciation. Also analyst predicted that Yuan would appreciate by 4% by the end of 2010 and 6% next year.This news ought to generate the weekend effect in the markets.DJIA, NASDAQ, NEKKEI, FTSE 100 would show volatility, which would be further witnessed by Indian markets as a Spillover effect. Also, the commodity prices tend to shoot up in the short run.
China is estimated to have invested about 70 percent of its foreign reserves in US denominated assets and is the biggest holder of US Treasuries of about $900 billion. Large trade surplus of China depicts, greater capital inflow, thereby increasing its forex reserve and thereby depicts a greater budget to purchase US treasury. Thus it is quite evident, that as the trade surplus of China surges, US would play the game of Tug of war and pressurize upon Yuan appreciation.
But the question still remains unanswered, that whether such increase in the Trade Surplus of China is signaling an economic growth or formation of an asset bubble in the near future.


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