REPORT ON THE INTERBANK FX MARKET IN OCTOBER 2004

Market performance

With 18 trading sessions in October, the accumulated turnover of the four trading currencies amounted to 24.058 billion in US dollar terms. The average daily turnover stood at US$1.337 billion, up 72.4 percent from the previous month and 33.2 percent year-on-year. During the first ten months of the year, the accumulated turnover reached US$148.351 billion, with a daily average of US$717 million.

Compared with the previous month, the average daily turnover for the USD, HKD, JPY and EUR increased noticeably. Compared with the same period of 2003, the average daily turnover went up for the USD, HKD and JPY, but dropped for the EUR.

The USD stabilized after a drop in early October. At the beginning of the month, the weighted average price of USD was 8.2768, the monthly high. It then dropped straight to 8.2765. It closed the month at 8.2765, one bp lower than the previous month.

The HKD fluctuated and rose in October. Opening the month at 1.0617, the weighted average price of HKD fluctuated but steadily increased in price, reaching a monthly high of 1.0638. F The low was 1.061. It closed this month at 1.0636, 24 bps higher than the previous month.

The JPY climbed steadily. The weighted average price of JPY started the month at 7.4788, and increased steadily. It closed the month at a high of 7.793, 3298 bps more than the previous month.

The EUR rose slowly in October. At the beginning of the month, the weighted average price was 10.1968. Affected by the strong EUR in the international FX market, it rebounded gradually, and soared to a high of 10.5966. The weighted average price of EUR closed the month at 10.5456, 3,436 bps higher than September.

Compared with the previous month, FX supply and demand both increased, and the excess of FX supply over demand expanded. The average daily surplus went up by 86 percent month-on-month and 33 percent year-on-year.

In October 2004, 13 financial institutions handled eight interbank foreign currency deposit deals, with the most frequently traded varieties being around one month. As of the end of October, 125 institutions have signed agreements with CFETS for foreign currency deposits.

Brief analysis

Macroeconomic adjustment measures continued to yield positive results. According to statistics published by the National Bureau of Statistics of China, by enhancing and perfecting macroeconomic adjustment during the first three quarters, economic uncertainties were kept in check and weak points strengthened.

In order to consolidate the achievements of macroeconomic adjustment and to make full use of economic instruments in resource allocation and macro adjustment, the PBC decided to raise the benchmark rates on the loans and deposits of financial institutions from October 29th. It also broadened the floating range of RMB lending rates and also allowed financial institutions to lower deposit rate.

Foreign trade remained in surplus. Statistics from customs showed that in September, the grand total of exports and imports exceeded US$100 billion for the first time this year and hit US$106.61 billion, increasing 27.6 percent year-on-year.

FDI utilization continued to grow. According to statistics from the Ministry of Commerce, 32, 279 new foreign-invested enterprises were approved to set up during the first nine months of 2004; contracted FDI reached US$107.42 billion; utilized FDI hit US$48.69 billion, increasing 9.28 percent, 35.62 percent and 21.01 percent year-on-year respectively.

FX management was further improved. While facilitating foreign trade and investment, the FX administrative departments have adopted measures to reinforce the supervision over capital flows, as well as rectifying and standardizing the economic order of FX market.

The RMB exchange rate remained stable under pressure. Addressing market rumors of RMB appreciation, the spokesman of SAFE clearly expressed the agencyÕIs attitude. Recently, especially during the last ten days of October, the turnover in the interbank FX market has increased rapidly. In the international market, the weak USD has exerted pressure on some participants in the interbank FX market.