AUGUST 2, 1999 VOL. 154 NO. 4

Beijing's Greenspan: Currency Shadow Box
China's top banker can still make Asia twitch
By JOSHUA COOPER RAMO

If there is any Asian economic indicator that is watched as closely as Japan's Nikkei, it is probably the exchange rate of the tightly controlled Chinese renminbi. The currency has been at the heart of worries about Asia's recovery. For most of last year, Pacific Rim policymakers were terrified that Beijing would devalue, hammering the struggling regional economies by making Chinese goods cheaper for world buyers. Such a move would also pull the floor out from under other Asian currencies. But the Chinese refrained, offering an emphatic "We will not devalue."

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So when China's top banker appeared to modify that line two weeks ago, he produced an electric effect. Speaking in the mode of opaque oracularity practiced by U.S. Federal Reserve Chairman Alan Greenspan, Dai Xianglong didn't exactly utter a declarative sentence. But his observation that the renminbi exchange rate is "determined by the market" jolted traders accustomed to the idea that China's exchange rate is determined--and rigidly enforced--by Dai himself. Result: a tiny crisis for Asian stocks and a hiccup on China's currency black market.

Last week China's leaders were backpedaling furiously from the remark, but the fact that a single subordinate clause could be so potent was a reminder that Asia's recovery is more delicate than it looks at times. Indeed, last Friday the Hong Kong stock market fell 2%, partly because of renewed devaluation fears. At the very least, it's a lesson in Greenspanology for Dai: when speaking as a banker, there's no such thing as too opaque.