More Playing the Money Market

More individuals in China are trading foreign currency in recent years, due to growing savings deposits, said officials.

"Both the trading cases and the transaction volume have witnessed double-digit growth during the past years," said Gao Huiqing, an expert with the State Information Centre.

The Beijing branch of China Construction Bank handled 138,000 foreign currency transactions in the past 12 months, with trading volume reaching US$92.7 million.

The transaction volume of the Bank of China exceeded US$4 billion in 1999.

"The growing foreign currency savings deposits and the increasing financial awareness are the major reasons for the vigorous transactions," said Zhang Xiaoqing, a division chief of Bank of China's treasury department.

Outstanding foreign currency deposits by individuals reached US$68.3 billion by the end of September, an increase of 32.9 per cent from the same period last year.

China's opening-up has allowed foreign companies to set up branches or joint ventures in the country, making it possible for Chinese residents to deal in foreign currencies, Zhang said.

The growing number of people who travel abroad is also increasing the amount of foreign exchange, he said. Statistics show that 1.93 million people took trips overseas in 1999.

The higher interest rates for some foreign currency has lured many to buy up foreign currency, Gao said.

In a move to stimulate domestic demand, China's central bank has cut interest rates seven times over the past three years, slashing interest on one-year deposits to 2.25 per cent.

A disguised interest rate cut in the form of a 20 per cent tax on bank deposit income was also put in place in November, 1999.

But the one-year interest rate on the US dollar is 5.5 per cent.

Many people exchange their renminbi for hard currency to maintain the value of their income, Gao said.

"The foreign currency transactions will continue to develop further as China gradually makes the renminbi convertible after accession into the World Trade Organization," he said.

Professor Zhang Yulin of the University of International Business and Economics said the foreign exchange market is somewhat more fair than the stock market, because there are fewer robust institutions which dominate the market.

"Investors can only earn in light of his or her sales on bullish prices on the stock market, but they can earn money via differences on interest rates, exchange rates or both on the foreign exchange market," Zhang said.



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