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FM PEKING
TO PRIORITY FCO
TELNO 794
OF 090923Z JUNE 93
Un. Ecaray 10
سام
142547 MDLIAN 8004
INFO PRIORITY SHANGHAI, HONG KONG, BTC HONG KONG, ATTC TAIPEI, INFO PRIORITY TOKYO, ASEAN POSTS, UKDEL IBRD/IMF, UKREP BRUSSELS, INFO PRIORITY UKREP GENEVA, BANK OF ENGLAND, ODA,
INFO PRIORITY ECGD, DTI INTRA, TREASURY
(DTI FOR XAAA/2D)
CHINA ECONOMY: FOREIGN EXCHANGE SYSTEM: REFORMS AND PROSPECTS
SUMMARY
1.INTENSE PRESSURE ON CHINESE EXCHANGE RATE, BUT SHARP OFFICIAL DEVALUATION UNLIKELY. CHINA'S FOREIGN EXCHANGE SYSTEM ALREADY RELATIVELY SOPHISTICATED FOR A PLANNED ECONOMY, BUT SOME FALSE EXPECTATIONS EXIST ABOUT PROGRESS TOWARDS ULTIMATE GOAL OF FULL CONVERTIBILITY. DESPITE OFFICIAL RHETORIC, THIS IS LIKELY TO BE SLOWED BY MORE IMMEDIATE ECONOMIC CONCERNS.
DETAIL
2. CHINA'S NON-CONVERTIBLE CURRENCY, THE RENMINBI (RMB), HAS RECENTLY ATTRACTED MUCH DOMESTIC AND INTERNATIONAL ATTENTION AS ITS EXCHANGE RATE HAS COME UNDER INTENSE PRESSURE ON THE COUNTRY'S FOREIGN EXCHANGE SWAP MARKETS. FOLLOWING THE REMOVAL OF AN ADMINISTRATIVELY IMPOSED CEILING ON 1 JUNE THE RATE HAS FALLEN FROM ABOUT US1: RMB 8 TO LESS THAN RMB 10. (IT HAD FALLEN TO 1:8 AFTER BEING RELATIVELY STABLE AT 1:5.4 BETWEEN MID 1991 AND MARCH 1992). THIS HAS CAUSED UNEASE AT A TIME WHEN MANY OVERSEAS INVESTORS HAVE RECENTLY INCREASED THEIR COMMITMENTS IN THE PRC AND PROMPTED FEARS OF A DEVALUATION OF THE SEPARATE OFFICIAL EXCHANGE RATE.
DUAL EXCHANGE RATES
3. IN CONSIDERING CHINA'S CURRENCY SYSTEM, MOST FOREIGN RESIDENTS AND VISITORS TEND TO FOCUS ON THE ODDITIES OF THE FOREIGN EXCHANGE CERTIFICATE (FEC), ISSUED TO FOREIGNERS INSTEAD OF RMB. IN THEORY IT IS ON A PAR WITH RMB, BUT IN PRACTICE IT NOW ENJOYS A HIGH PREMIUM ON THE BLACK MARKET. RUMOURS FREQUENTLY CIRCULATE THAT IT
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