REPORT ON THE INTERBANK FX MARKET IN MAY 2004

Market performance

The accumulated turnover of the four trading currencies amounted to 9.86 billion in US dollar terms in May. The average daily turnover stood at US$548 million, down 10.8 per cent from the previous month and dipping 0.3 per cent from the previous year. In the first five months of 2004, the accumulated turnover reached US$64.69 billion, with the average daily turnover hitting US$640 million.

Compared with the previous month, the average daily turnover of the USD and the JPY decreased, while that of the HKD and the EUR increased. Compared with the same period last year, the average daily turnover of the USD and EUR decreased, while that of the HKD and JPY increased.

In May, the USD remained stable with a slight downward trend. Opening the month at 8.2771, the weighted average price of USD reached a monthly high of 8.2773. It closed at 8.2768, three bps lower than the previous month.

The HKD headed higher this month. The weighted average price of HKD was 1.0606 at the beginning of this month. On the second day of trading it decreased by one bp, the lowest price this month. It then went up significantly and reached a high of 1.0627 on May 21. It ended the month at 1.0617, eight bps higher than the previous month.

The JPY halted its fall and rebounded. The weighted average price of JPY at the start of the month was 7.3636, and reached a low of 7.2253 on May 14. It then rebounded, closing the month at a high of 7.5473, 479 bps higher than the previous month.

The EUR recovered slightly. At the beginning of the month, the weighted average price of EUR was 9.8512. During the last third of May, the EUR/RMB returned to the integer level of 10. The weighted average price of USD reached the high and low of 10.1584 and 9.7809 respectively. It closed the month at 10.1078, 2,080 bps higher from the previous month.

Compared with the previous month, the FX supply decreased while the demand increased in May, thus narrowing the excess of FX supply over demand. The average daily surplus decreased by 27.1 per cent from the previous month and fell by 21.7 per cent year-on-year.

In May 2004, eight financial institutions handled eight interbank foreign currency deposit deals that focused on USD. As of end-May, 120 institutions have signed agreements with CFETS for foreign currency deposit.

Brief analysis

With the implementation of tightening macro adjustment policies, China had performed well economically in April. Rapid credit loan growth was checked and the rising rate of fixed investment slowed down.

Foreign trade remained in deficit. According to Customs, total imports and exports during the first four months of 2004 reached US$336.24 billion, up 38 per cent year-on-year. In April, imports and exports went up by 37.6 per cent year-on-year to US$96.50 billion. The trade deficit is expected to persist.

FDI continued to grow. According to the Ministry of Commerce, 14,328 new foreign-funded enterprises were approved during the first four months of 2004, increasing by 17.46 per cent year-on-year. The contracted FDI reached US$47.001 billion, up 53.96 per cent year-on-year, and the utilized foreign capital stood at US$19.617 billion, up 10.07 per cent year-on-year.

The FX administration over capital account was improved. Recent measures issued by SAFE will facilitate attacking illegal FX speculation and checking the rapid growth of capital and foreign debt settlement in the short term.

Changes in the internal and external environments were conducive to maintaining a stable RMB exchange rate. The surplus of FX supply over demand in the interbank FX market dropped considerably, both month-on-month and year-on-year, which could well mark a turning point.