Face cold realities of global hot money: researcher

BEIJING, May 19 -- The 2008 China Financial Market Development Report,
issued by the People's Bank of China on May 4, pointed out that various stimulus
packages launched by respective countries would influence supply and demand
relation in international financial market. This may probably lead to a large
scale withdrawal of capital from emerging markets. "If the inflowing offshore
funds in China begin to outflow, it may probably result in a drastic adjustment
in the stock market and bond market of China," said the report.

The warning of the Chinese central bank is based on the financial crises as
it occurred in different countries as well as the appreciation of the US dollar
since the later half of 2008. The dollar value moving up resulted from the
flowback of large sums of money from international markets to the US after
subprime mortgage crisis.

After the financial tsunami broke out in the US in 2008, it is not only the
US financial institutions that brought back the capital invested overseas to
make up the shortage of liquidity but capital in the global market also sought a
safer place--the US market. Therefore, it is no surprise that foreign capital
withdrew from emerging markets considering that capital from other parts of the
world also flowed to the US.

Various recovery measures and economic stimulus packages, which are
announced by the affected countries with the aim of saving a depressed economy,
will also change the trend of capital flows in the international financial
market.

On May 5, State Administration of Foreign Exchange (SAFE) in China solicited opinion from all social sectors on the issue of administration of domestic foreign exchange accounts of foreign institutions. SAFE stated that these accounts of some foreign institutions tend to be a hotbed of illegal practices because of the absence of unified regulations. SAFE will reinforce the management of these accounts in domestic non-offshore banking sectors.

I believe that there are several key points here. First, SAFE will regulate
the opening and operation of foreign institutions' domestic foreign exchange
accounts, in order to keep track of cross-border capital flows. Second, it wants
to prevent these accounts from being used for money laundering. Third, it
intends to prevent the large-scale illegal flow of cross-border capital in these
accounts from adversely impacting China's financial market. Fourth, it wants to
avoid these accounts becoming the main channel for the escape of international
hot money.

In recent years, with the increasing opening up of China, more and more
foreign institutions have opened foreign exchange accounts in domestic banks.
The volume of business keeps increasing rapidly. According to incomplete
statistics, such accounts opened by foreign institutions within China exceeded
100,000 at the end of 2008.

A few years ago, when RMB was appreciating fast and domestic asset prices
increasing in leaps and bounds, a large number of foreign institutions
frequently opened accounts in domestic banks. This made a huge a mount of
international hot money rush into China. The total volume of international hot
money in China at that time was estimated to be $500-600 billion equivalent to 5
trillion yuan. After the financial crisis broke out, due to the reflux of the US
dollar and the depreciation of RMB, the net outflow of the balance of payments
accounts in China is estimated to be between $20 billion to $200 billion in the
fourth quarter of 2008.

The trend of RMB exchange rate and the development of Chinese economy in
the future will determine the direction of international hot money flow.
Considering the fact that China's economy will recover earlier than other
countries, if RMB exchange rate can be kept stable or even allowed to rise
slightly, there is little chance of a massive outflow of international hot money
from China, no matter how turbulent international financial markets are. If the
flow of international hot money can be limited to a controllable range, we don't
need to worry about it too much.

However, if China doesn't accelerate the pace of economic reform for
dealing with key problems, China's economy will face many difficulties when the
US and European economies revive after the crisis. By that time if the RMB is
depreciated because of a slowdown of China's economic growth rate, it is
possible that there would be huge amounts of international hot money outflow
from China.

China should tighten the administration of the cross-border flow of
capital. But it is unnecessary to strictly control the outflow of oversea
capitals. The key to this issue is whether China's economy can keep sustained
and steady growth.

The author is a researcher with the Institute of Finance and Banking under
the Chinese Academy of Social Science

(Source: China Daily)

International trade fair opens in Pyongyang

PYONGYANG, May 11 (Xinhua) -- The 12th Pyongyang Spring International Trade Fair opened at the Three Revolution Exhibition of Pyongyang on Monday, aimed at expanding economic exchange and cooperation with foreign countries.

More than 200 companies from 19 countries and regions, including China, Singapore, Switzerland, Russia, Italy, Australia and Vietnam, attended the four-day event.

Over 100 Chinese companies, mainly from China's northeastern Liaoning province, took part in the fair, which is scheduled to close on Thursday.

Items on display include electronic products, machines tools, vehicles, medicines and other commodities.

The annual Pyongyang Spring International Trade Fair is organized by the Korea International Exhibition Corporation, which also holds an annual autumn trade fair.

12th Pyongyang Spring Int'l Trade Fair opens

Guests attend the opening ceremony for
the 12th Pyongyang Spring International Trade Fair in Pyongyang, May 11,
2009. Over 220 enterprises from 19 countries and regions attended the
fair, which is to be concluded on May 14. (Xinhua/Gao
Haorong)
Photo
Gallery

People visit the exhibition hall of the
12th Pyongyang Spring International Trade Fair in Pyongyang, May 11, 2009.
(Xinhua/Gao Haorong)
Photo
Gallery

World Bank moves to widen access

BEIJING, Feb. 13 -- The World Bank's board of governors has approved a
proposal to create an additional seat for developing nations on its executive
board. This move, if sealed by the bank's 185 members, will help developing
countries to have a majority of seats on the board. It would also help increase
the voting power of this bloc to 44 percent.

"Expanding the developing world's voice
is central to delivering effective aid and promoting shared prosperity and
development within a 21st century economic reality," World Bank Group
President Robert Zoellick said in a statement.(Photo: China
Daily)
Photo
Gallery

The measure comes as a response to the criticism that it (and other
international organizations such as the IMF) faced last year for its failure to
foresee the global financial crisis.

At the G20 Summit in Washington last November, some developing nations had
pressed for a revision in the representation mechanism in international
financial institutions. This, they said, would enable them to have a better say
in the workings of these multilateral bodies.

"Expanding the developing world's voice is central to delivering effective
aid and promoting shared prosperity and development within a 21st century
economic reality," World Bank Group President Robert Zoellick said in a
statement.

The bank agreed to add a chair for Sub-Saharan Africa in addition to its
existing 24 seats on the executive board. This was part of the bank's "first
phase of reforms to increase the influence of developing countries". It also
pledged to undertake a comprehensive work program to realign bank shareholdings
and move toward an equitable voting arrangement between the developed and
developing countries.

Although the latest move comes as an important step to help reform the
World Bank's governance structure, experts have warned that bolder reforms are
needed going forward.

"It is an irreversible trend for the developing world to push reforms on
the international financial institutions, and the change in the World Bank's
representation is but a minor step on the road to making it more
representative," Hua Ercheng, chief economist with the China Construction Bank,
said.

The current management mechanism in international financial institutions
was out-dated as it largely reflected the political and economic landscape of
the early years after World War II, Hua said, pointing out that it was
unreasonable to still stick to the old governance model.

(Source: China Daily)

UN agency: global economic turmoil halts upward trend in foreign travel

UNITED NATIONS, Jan. 27 (Xinhua) -- The current global economic slowdown brought the growth of international tourism to a standstill in 2008 and threatens to reverse the historic four-year gains made by the industry in foreign travel, according to a report published on Tuesday by the United Nations World Tourism Organization (UNWTO).

Although international tourist arrivals reached 924 million in 2008, up 16 million from 2007 or a two percent overall increase on the year, growth stagnated in the second half of last year, hitting Europe the hardest.

The collapse of financial markets, sharp increases in commodity and oil prices and volatile exchange rate fluctuations combined to force a one percent decline in international travel in the six months from July, a trend that is expected to continue in 2009.

A three percent drop off in international arrivals across Europe after June meant the continent was the only region to experience stagnation over the whole year, reported the January 2009 issue of the UNWTO World Tourism Barometer.

International travel to Asia also decreased by three percent in the second half of 2008 after double-digit growth in 2007 and a six percent increase in the first part of 2008.

On the other hand, the Americas, up one percent overall; Africa, up four percent; and the Middle East five percent; had all posted positive results in the second half of the year, although with a significant slowdown compared with the period between January and June.

The UNWTO report forecasted continued stagnation or decline for this year and beyond, but noted that the high degree of economic uncertainty makes predictions of international travel difficult. If the economy starts to show signs of an early recovery, foreign travel might grow slightly in 2009, but if the economy deteriorates further, then the current forecast might be revised downwards.

As most of the travel to the Americas and Europe originates from countries already suffering from historically severe economic recession, UNWTO expects those two regions to be the most affected with a decline of up to two percent.

Predictions for Asia and the Pacific, on the other hand, are positive, although growth will continue to be much slower compared with the region's performance in recent years; the same applies to Africa and the Middle East.

The UNWTO report underscored the fact that the softening of international tourism growth follows four historically strong years, with seven percent annual growth between 2004 and 2007.