Wednesday, October 26, 2005
money Huijin raised from the IPO will not go to the MOF or to the social security fund. Huijin will keep it in the overseas branches of CCB in foreign currency, not in RMB. This latter part makes sense, since the money was sterilized already when it entered China as trade surplus money. They don't want to sterilize it again by converting it back to RMB. The question is what will they do with all this money?
I am sure there are powerful forces in China calling for the repatriation of this "profit," with the MOF being the leading contender. Wen himself might even favor the repatriation of such a large amount of money, which would really help bolster the social security fund. On the other hand, Huang Ju, who is in charge of the financial sector, likely supports the current policy of keeping the money abroad. There are technical reasons to do this, but there are compelling reasons either way. Clearly, Zhou Xiaochuan is siding with, if not actively encouraging, Huang Ju to do this. But I think this is a dangerous game to play for Zhou, since Wen is still the Premier of China, who can stall his promotion prospect at the 17th Party Congress.
By having Huijin retain this money, the PBOC will have a large treasure trove with which to build an empire. With this money, Huijin will take over the relending function of the PBOC, at least with respect to financial institutions. Instead of using PBOC money to bail out distressed financial firms, the PBOC will simply have Huijin use its hoard of money to do it. In this process, the PBOC through Huijin will gain control over the entire financial sector (given that most financial institutions are distressed....). That's what I call reform!
Taiwan's DPP's top China policy advisor says that Wen is under attack by Zeng in the 5th plenum. How credible do you think this piece of news is (does it have any relevance to your main argument)?