It is the second time this week that off hand remarks made by Chinese officials have affected stock markets. The first was made by Premier Wen Jiabao on November 5 reflecting that the "through train" of capital from investors in mainland China is not coming to Hong Kong any time soon despite the fact it was supposed to be a done deal back a couple of months ago. Of course he did not directly say that. The guy was in Uzbekistan and just mentioned that more scientific factors need to be determined before opening the dam.
The second remark drove the Dow to plummet 360 points. Excerpt from The Wall Street Journal:
"A weakening dollar has played a significant role in driving commodity prices higher, and the greenback sagged across the board after a Chinese government official indicated Beijing may seek to diversify its foreign-currency reserves. Cheng Siwei, the vice chairman of the Standing Committee of the National People's Congress, was quoted by wire services as saying China should shift more of its $1.43 trillion in reserves into "stronger currencies" to offset "weak" currencies like the dollar."
Well there you have it. A vice chairman of the Standing Committee of the National People's Congress talking about a huge financial move China that can affect the world economy. Who is this guy anyway? Sure the Standing Committee is of some importance in China, but then it is a part of the NPC, the world's biggest rubberstamp of a congress.
According to Who's Who in China's Leadership Cheng Siwei graduated from UCLA with an MBA in 1984. But it looks like from his bio he is an engineer without any background in capital markets and managing a large economy. Is he just a peon in the bureaucracy who got picked to make a little blurb to let the Federal Reserve know that the weakening dollar is not sitting well with party bosses? Or is he just making crazy talk without anyone telling him to make comments?
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I've seen some talk that Mr. Cheng is just some guy with no responsibility in financial areas who just sort made of this remark. A peon, and crazy talk?
Maybe it is more of a reflection of the caution with which Wall Street approaches China?
Talk on NPR the other day was telling us to begin slowly divesting all of our shares into money market accounts, and wait to buy when the recession comes.
Maybe Wall Street is just overly cautious at the moment because securitized debt has shaken investor confidence?
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