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Friday, May 13, 2005 12:23 AM

Focus on Chinese SOEs

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According to the State-owned Assets Supervision and Administration Commission (SASAC) more than 2,000 debt-ridden State-owned enterprises (SOEs) will be closed down or go bankrupt in the next four years.

Asia Pulse reports the shutdown of these SOEs will leave 3.66 million employees needing reallocation.

Enquiring minds might be wondering if there are additional clues in the Shanghai Stock Index. Let's take a look.

Am I really supposed to believe that China is ready to float the RMB or even substantially repeg it higher in the face of a collapsing stock market, a certified property bubble, insolvent banks, and hot money pouring hoping to make a quick score?

I think not. If China did float and hot money left, what would happen to the RMB with Chinese banks and SOEs in the condition they are in? So far no one has been able to answer that question satisfactorily.

My opinion is actually irrelevant but here is one that matters:

China will not revalue the yuan when it expands foreign exchange trading next week, Xinhua news agency reported, citing central bank governor Zhou Xiaochuan.

"That is definitely impossible," Zhou said, responding to a question about market rumors of a yuan revaluation on May 18 when the foreign exchange market expands the number of currencies traded.

"That's only what foreigners have been saying, and only some individuals at that," Zhou said at a meeting of the Chinese Academy of Social Sciences. "Can you really take that seriously?" he said

If Zhou can force the hot money out of China, then we can talk. In the meantime, day in and day out there is too much speculation that China is about to do something that dollar bears think they would appreciate. Perhaps dollar bears better think twice. They just might not want what they seek.

Mike Shedlock / Mish

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