REPORT ON THE INTERBANK FX MARKET IN THE FIRST HALF OF 2004

Market performance

During the 123 trading days in the first half of 2004, the accumulated turnover of the four trading currencies amounted to 79.321 billion in US dollar terms. The average daily turnover stood at US$645 million, decreasing by 9.6 per cent from the second half of 2003 and increasing by 33.2 per cent from the first half of 2003. In June 2004, the accumulated turnover reached US$14.634 billion with the average daily figure hitting US$ 665 million.

As compared with the second half of 2003, the average daily turnover for USD, HKD and EUR decreased, while that for JPY increased markedly. As compared with the first half of last year, the average daily turnover went up for USD, HKD and JPY, but dropped for EUR.

In the first half of 2004, the USD fluctuated slightly. Opening this year at 8.2769, the weighted average price of USD moved between the high of 8.2774 and the low of 8.2766. It closed June at 8.2766, one bp lower than 8.2767, the figure at the end of last year.

The HKD went down slowly. Opening the year at 1.0656, the weighted average price of the HKD reached the highest point of 1.0658 and the lowest of 1.0605. On January 18, affected by the news that the China UnionPay Co. Ltd. officially launched the use of RMB bank cards in Hong Kong, the weighted average price of HKD slumped to 1.0615, but recovered quickly the next day. It then went down gradually and closed June at 1.0607, 50 bps lower than the end of last year.

The JPY went through ups and downs in the first half of 2004. The weighted average price of the JPY started this year at 7.7345, remained stable before the second ten days of February, and then underwent fluctuations. The weighted average price of the JPY reached the highest at 7.9422 and hit the bottom at 7.2253. It closed at 7.6176, 1,234 bps lower than that at the end of 2003.

The EUR fell in fluctuation. The weighted average price of the EUR opened this year at 10.3951. During the first half of 2004, it reached a high of 10.6556 and a low of 9.76. It closed June at 10.0021, losing 4,015 bps from the end of last year.

The FX supply decreased while demand increased, thus the excess of FX supply over demand shrank during the first half of 2004. The average daily surplus went down by 18.75 per cent from the second half of 2003 but up 34.55 per cent from the first half of 2003.

 Z(

During the first half of 2004, 47 interbank foreign currency deposit deals were handled, mainly in USD. Up to the end-June 2004, 123 institutions have signed agreements with the China Foreign Exchange Trade System (CFETS) for foreign currency deposits.

Brief analysis

China's economy keeps on growing rapidly, and the effect from macro adjustment is manifested evidently. From May 2004, the trend of excessive credit increase is initially curbed; the growth rate of fixed investment tends to level off; grain production takes a favorable turn; and market price rise slows down.

Trade surplus replaced deficit. Primary statistics from Customs show that in the first five months of 2004, the grand total of exports and imports hit US$423.84 billion, increasing 37.1 per cent year-on-year. In May 2004, the accumulated trade surplus was US$ 2.1 billion, the first trade surplus this year.

FDI kept growing. Statistics from the Ministry of Commerce demonstrate that in the first five months of 2004, 17,359 new foreign-funded enterprises were approved, up 14.39 per cent year-on-year. The contracted FDI reached US$57.24 billion, up 49.76 per cent as compared with the same period last year. The utilized foreign capital hit US$25.91 billion, up 11.34 per cent year-on-year.

The RMB exchange rate remained stable, and the exchange rate mechanism will be further perfected. In both the Government Work Report by Premier Wen Jiabao and the Q1 regular meeting of the Monetary Policy Committee of the PeopleÕZ s Bank of China, the attitude toward the RMB exchange rate is to maintain basic stability on the reasonable and equilibrium level.

On June 8, Chicago Mercantile Exchange (CME) and CFETS signed a Memorandum of Understanding, which will benefit the two parties' long-term cooperation and communication.