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When is initial not
initial?
By David M Lenard
HUA
HIN, Thailand - So far this week, the People's Bank of
China (PBoC), China's central bank, has issued
two major statements in an attempt to clarify
questions that had arisen after last week's "Thursday
surprise" revaluation of the yuan. The first
statement, which gave written responses to questions
submitted by the media, provided (on careful
reading) several interesting insights into the
thinking of the PBoC and the Chinese government as
they transition the country to a new
currency regime. But the most recent statement, whose official
English translation was only posted on
the central bank's website the afternoon of July
26, appears to be an attempt to counteract
the effects of a widely quoted remark PBoC
chairman Zhou Xiaochuan is said to have made
during a July 23 TV interview, which many
journalists interpreted as implying that further
revaluations of the yuan were inevitable.
The 'initial' flap
On Saturday,
July 23, PBoC chairman Zhou Xiaochuan (China's
counterpart of Federal Reserve Bank chairman Alan
Greenspan) was interviewed on China Central
Television (CCTV), China's state-controlled
television network. An account of the interview
which appeared in the official People's Daily
Online stated:
"Zhou said that [last
week's foreign exchange reform] contains three key
points: the yuan to US dollar pegging system is
switched to a basket of foreign currencies, and at
the same time the yuan floats according to market
demand-supply relations; the exchange rate will be
floating within a reasonable band; and an initial
adjustment is made, that is, a 2% rise of [the
yuan] in value against the US dollar."
It
is not clear whether CCTV or People's Daily
understood the implications in English of the
phrase "initial adjustment", and it is certainly
possible that the sense of Zhou's remarks might
have been lost in the translation from Mandarin to
English. But it is clear that many Western
journalists, at various publications, including
the Financial Times, Bloomberg, and Ireland's
Finfacts, interpreted the "initial adjustment"
language as a clear implication that further rises
in the value of the yuan were inevitable.
This was no trivial misunderstanding. One
of the biggest risks China courted when it decided
to make last Thursday's revaluation so small (only
2.1%) was that speculators would react by
purchasing large amounts of yuan in the belief
that further revaluations would follow, yielding a
nearly riskless profit. So the PBoC felt
compelled to correct what it saw as a serious
misinterpretation by the Western media of Zhou's
remarks. The resulting "Solemn Statement by the
Spokesman of the People's Bank of China" appeared
on the PBoC website Tuesday, first in Chinese and
then, several hours later, in English.
The 'solemn
statement'
The
statement complained that "certain foreign media
[have] misled the public and even wrongly
speculated that the revaluation of [the yuan] by
2% was only the first step in a series of
adjustment[s]", then asserted pointedly: "First, a
revaluation of [the yuan] by 2%, effective in the
beginning of the exchange rate regime reform, does
not in the least imply an initial move which
warrants further actions in the future." The text
then added: "Second, the 2% revaluation of [the
yuan] was calculated and conducted to maintain the
[yuan] exchange rate basically stable at an
adaptive and equilibrium level." After a third
point about "gradualism", the statement concluded
with another veiled slap at the Western press:
"The PBoC welcomes the attention and support on
the reform of the [yuan] exchange rate regime from
all walks of life, both at home and abroad, and is
looking forward to responsible and objective
coverage of the reform based on correct
understanding."
Interestingly, an earlier
Reuters report on the PBoC's
statement, which was based on the Chinese version,
was slightly more specific about the alleged misunderstanding;
according to this version, the
confusion centered on the object of the
word "initial". The Reuters translation of the first point
stated: "First, the initial 2% adjustment of the
yuan exchange rate level referred to adjustment at
the initial stage of the reform of the
yuan exchange rate formation mechanism. That does not mean
that the first-step adjustment was 2% and there
will be further adjustments to follow." In other
words, the adjective "initial" modified "stage of
reform", not "adjustment". This interpretation seemed
a bit hard to swallow in light
of the English text which appeared in People's Daily, in
which the word "initial" and the word "adjustment"
are regrettably, and irrefutably, in proximity.
Indeed, this version of the
PBoC text was reminiscent of the frequent "he
didn't say what you think he said" remarks by the
various press secretaries of the late US President
Ronald Reagan, whose oral utterances were notorious
for their frequent divergence from the actual
policies of his administration.
Did Zhou make a
gaffe?
No
firm conclusion can be made without
parsing his remarks in Chinese and consulting
various interpreters. The Reuters text implies
that he did, but this may simply have been an
error introduced by the Reuters interpreter. Irrespective
of whether the misunderstanding was created
by Zhou, Western journalists, or some combination
of the two, the incident clearly showed
how important China's central bank, and its chairman,
have become to the world economy. For many
years, Federal Reserve chairmen have understood
the importance of being very cautious with
their remarks: a single careless sentence from the Fed
chairman can result in a frenzy of activity on
financial markets worldwide. If nothing else, the
"initial" episode showed that the chairman of
China's PBoC now occupies a position of comparable
importance to Alan Greenspan, and must be equally
careful with his words.
David M
Lenard is a correspondent for Asia Times
Online in Thailand.
(Copyright 2005
Asia Times Online Ltd. All rights reserved. Please
contact us for information on sales, syndication and republishing.) |
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