REPORT ON THE INTERBANK FX MARKET IN NOVEMBER 2004

Market performance

With 22 trading sessions in November, the accumulated turnover of the four trading currencies amounted to 27.657 billion in US dollar terms. The average daily turnover stood at US$1.257 billion, down 5.9 percent from the previous month and up 48.8 percent year-on-year. During the first eleven months, accumulated turnover reached US$176.009 billion with a daily average of US$769 million.

Compared with the previous month, the average daily turnover of the USD, HKD, JPY and EUR decreased. Compared with the same period in 2003, the average daily turnover went up for USD, HKD and JPY, while that of EUR dropped.

The USD was stable in November. The weighted average price of USD was 8.2765 at the beginning of this month, maintaining that price while turnover increased markedly. It closed the month at 8.2765, equal to the ending figure of the previous month.

The HKD fluctuated slightly in November. Opening at 1.0634, the weighted average price of HKD had a monthly high and low of 1.0646 and 1.063 respectively, fluctuating within a 16-bp band. It closed the month at 1.0639, up three bps from the end of the previous month.

The JPY rose slowly in November. The weighted average price of JPY started the month at 7.7854, before falling to a monthly low of 7.7321. It then rebounded gradually, soaring to a high of 8.0733. The weighted average price of JPY closed the month at 8.0217, 2,287 bps higher than that of the previous month.

The EUR climbed steadily in November. The weighted average price started the month at 10.5774, but affected by the strong EUR in the international FX market, it rose steadily to a high of 10.9764. It closed at 10.9607, 4,151 bps higher than the previous month.

Compared to the previous month, average daily FX supply and demand both decreased, and the average daily surplus shrank.

In November 2004, 15 interbank FX deposit deals were handled. Medium and short-term deposits, mainly around one month, dominated the deposits deals. As of the end of November, 125 institutions have signed agreements with CFETS for foreign currency deposits.

Brief analysis

The macro adjustment measures continued to yield results. The central bankÕN[1]s third-quarter monetary policy report indicated that macro-adjustment had measurable effects, that the excessive growth in investments on fixed assets was under initial control, and that money credit continued to develop in the direction of financial adjustment.

Foreign trade remained in surplus. Customs statistics showed that in October, the grand total of exports and imports hit US$97.96 billion, increasing 28.8 percent year-on-year. The volumes for exports and imports were US$52.53 billion and US$45.43 billion respectively, up 28.5 percent and 29.3 percent year-on-year, thus the trade surplus of October was US$7.09 billion.

Direct foreign investment continued to increase rapidly. According to statistics from the Ministry of Commerce, more than 35 thousand new foreign-invested enterprises were approved in the first ten months of this year; contracted FDI reached US$118.999 billion; and the utilized FDI hit US$53.781 billion, increasing 7.66 percent, 34.19 percent and 23.47 percent year-on-year respectively.

The central bank took active measures to alleviate RMB appreciation pressure. With the interest rate increase on October 29 and the weak US dollar on the international market, the RMB exchange rate became again the hot topic. On November 28, at the Association of Southeast Asian Nations (ASEAN) conference, Premier Wen Jiabao re-stated that China will not revalue the RMB under external pressures. The central bank will actively take market measures to solve the abnormal increase in FX reserves and to ease the pressure on RMB base money supply.