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Betting on the inevitable

By China Economic Review

After which the question becomes, what happens when it happens?

A revaluation of the renminbi now seems to have moved from the probable to the inevitable, and wise business people are of course appropriately rearranging their portfolios.

We know this is true because officials say it is so. “We now seriously warn all speculators engaged in illegal speculative activities that the State Administration of Foreign Exchange (SAFE)… will not ignore any activities and evidence of misdeeds that play havoc with the order of our foreign exchange market,” a SAFE statement said.

The authorities are in a bind, but things are not going to get any easier.

Which argues for earlier action rather than delays too far into 2005. The continuing weakness of the US dollar is another factor pushing the authorities to take action.

The best guess that China Eye has come across – from a rich Shanghai businessman – is a prediction of a 15% revaluation at some time in 2005. The percentage feels right, and the timing is vague because it has to be. Any indications would create an even bigger avalanche of cash coming into China ahead of the date.

The next problem, once the revaluation has been done, is to deal with the follow-on problem – the counter avalanche of money back out, looking to lock in the gain, whatever percentage it ends up being. That will put further pressure on the stock market and presumably help to calm the property markets.

In the end, the whole process will simply make the RMB that much less controlled and that much more a part of the global system. It’s just a matter of time.

The outcome of the December 11 Legislative Yuan elections in Taiwan was a surprise. Chen Shui-bian’s DPP suffered a defeat at the hands of the less confrontational KMT led by Lien Chan.

China Eye was expecting a narrow DPP victory. After his masterful manipulation of the presidential election – that “assassination” attempt: wonderful theater – it was assumed that a similar scenario would be enacted in the Legislative Yuan elections. But democracy is a tricky thing, and it is clear that the Taiwan middle class has been uncomfortable at Chen’s constant pushing towards independence in the face of continual Beijing threats.

The outcome tells us that the mainland China factor is of key importance in Taiwan politics, and that when pushed to it, Taiwanese voters prefer the status quo. That will take the heat off, and also make Chen Shuibian more of a lame duck president.

Post-9/11, there is no way the US could support a formal independence declaration by Taipei. So the last year of pushing by Chen simply made everyone uncomfortable, including his own electorate.

In the medium term, this election result makes more likely a scenario involving some kind of talks between Taiwan and Beijing – maybe with the KMT on the Taipei side of the table.

In the years ahead, Taiwan’s economy will become ever more intertwined with the mainland economy, and who wins the 2008 Taiwan presidential election?

How about Taipei mayor Ma Ying-jeou?

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