From Volume 6, Issue 23 of EIR Online, Published June 5, 2007
Asia News Digest

Hong Kong Monetary Chief Fears U.S. Dollar Collapse

May 29 (EIRNS)—The Hong Kong Monetary Authority (HKMA) has warned about the dangers posed to the world financial system by the vulnerabilities of the U.S. economy, in a statement yesterday, the Hong Kong Standard reported. "A sudden and sharp depreciation of the U.S. dollar, the disorderly unwinding of global imbalances and a spillover of U.S. housing market weakness are external risks to the currency stability in Hong Kong. Financial instability and volatile capital flows are induced by an increased risk aversion of market participants and higher market volatility and the destabilizing activities of hedge funds," HKMA chief executive Joseph Yam Chi-kwong said in a report to the Hong Kong Legislative Council Panel on Financial Affairs.

Yam's warning points to those made by Lyndon LaRouche for two years against those bankers, elected officials, and economists who want to force China's currency dramatically upward; they are driving for a global dollar collapse and financial chaos. The HKMA recently decoupled the Hong Kong dollar from China's yuan, according to Yam, and kept it pegged to the U.S. dollar, though it has slid to the 22-year low end of its range against the U.S. dollar. Meanwhile, he said, the value of China's yuan has actually already risen 7% in two years. Now he is warning about "an asset bubble in China"; but clearly, Yam's real worry is of a U.S. dollar collapse and "an interest rate shock," with China tightening and raising interest rates even as the dollar plunges.

While Yam maintained that the economy of Hong Kong itself is "normal," he had warned in February, that efforts in Beijing to control liquidity and China's enormous trade surplus, means that "the economy may be faced with consequences beyond imagination, eventually."

Hong Kong, although only a "special zone" of China, has the eighth-highest amount of foreign exchange reserves in the world, $137 billion, more than either Germany or Brazil.

China To Increase Ratio of Euros in Forex Reserves

June 1 (EIRNS)—The Chinese government will increase the ratio of euros in its huge foreign exchange reserves, but has no plans to reduce the proportion of U.S. dollars, which make up the vast proportion of the reserves. The decision to buy more euros would be based on the value of the currency [which has been rising steadily against the U.S. dollar] and stable EU economic growth, Wu Xiaoling, a vice governor of the People's Bank of China, said during an economic forum in Brussels on May 31. Although it is not officially stated, it is unofficially reported that some 70% of China's reserves are in U.S. dollar assets, including U.S. Treasuries.

Wu Xiaoling also emphasized that China would focus on developing its internal consumption and living standards, to bring its huge trade surplus into better balance. China will also gradually increase the flexibility of the yuan exchange rate, but as a secondary measure, she said. "If we intend to solve the problem of imbalanced trade, we will first increase the flexibility of the yuan exchange rate, but that will not be the main means." Among other measures, China must improve its social security networks.

Wu also said that the stock market is expanding too rapidly, which regulators want to stabilize. "If the stock market can't operate smoothly, then investors' confidence will be hurt and their consumption will be affected," she said.

LaRouche Supports Fukui on Hedge Fund Controls

June 1 (LPAC)—Lyndon LaRouche expressed his full support for the call last week by Bank of Japan governor Toshihiko Fukui to impose new regulations on hedge funds, but went further to insist that "the very existence of hedge funds is insane," and that they should be eliminated altogether. Noting that the Japanese have revealed over the past month that the yen carry trade has been driven by hedge fund speculators (see
), LaRouche added that it is time for Japan to "end the carry trade altogether, and raise interest rates to international levels." LaRouche said that every time Japan postponed raising rates, for fear it would undermine the international financial system, that system simply got worse. reported May 25 that Fukui had warned the Japanese Diet that direct controls by governments of the hedge funds is nearly impossible, because they are often registered in off-shore tax havens (see, "London's Cayman Islands; The Empire of the Hedge Funds"). International controls are therefore required, Fukui concluded, adding that the hedge fund method of leveraged borrowing must be traced in order to "grasp the whole picture," calling the hedge funds "close to a virtual world." He warned that the hedge funds have greatly increased the risk to the global system, and that this risk "could be explosive."

India To Upgrade Communication Links with Myanmar

June 1 (EIRNS)—To upgrade its telecommunication links with Myanmar, Indian state-owned Bharat Sanchar Nigam Limited (BSNL) and the Telecommunication Consultants India Limited (TCIL), will lay fiber optic cables from India's Northeastern border state of Manipur, BSNL officials said.

The network of the land-line project will begin in Imphal, capital of Manipur, and connect to Moreh on the border. And in Myanmar, about 500 km will be connected, commencing from the Myanmar border town of Tamu to Mandalay, the second-largest city in central Myanmar, BSNL officials said.

New Delhi's decision to enhance infrastructural linkage with Myanmar is strongly opposed by Western nations—the United States and the United Kingdom, in particular. However, India, which is now rebuilding the Stilwell Road to link southern China with India through Myanmar, considers stronger bilateral relations with Myanmar as a necessary step in its land-linkages with Southeast Asia.

Mongolian Leader Visits South Korea

May 29 (EIRNS)—Korea's Yonhap news agency reported that Namar Enkhayar, the head of state of Mongolia, was recently in South Korea. Namar expressed support for South Korea's engagement policy with North Korea, and noted that rail links between the North and South Korea, and passing through Mongolia, will be beneficial for the development of Mongolia.

Namar said that "particularly if the railroad relinking project moves forward, it is expected to pass through Mongolia. That will make great contributions to the development of both economies."

Housing Bubble, Yen Carry Trade Threaten S. Korean Economy

May 30 (EIRNS)—The housing bubble and a heavy reliance on overseas borrowing—notably, the yen carry trade—can lead to an economic crisis in South Korea, according to an assessment given by South Korea's Economics and Finance Minister Kwon O-kyo.

Yonhap reported that Kwon O-kyo said that, "A sudden housing price plunge is one of major risks that could arise within South Korea." Kwon then expressed fears about the rapid rise of the South Korean won to the U.S dollar.

Last year, the won rose 9% against the dollar. Kwon attributes this to short-term overseas borrowing. Kwon added that "a sudden liquidation of the yen carry trade is another risk factor for the Korean economy." In recent months, the South Korean government had been side-stepping the issue of the yen carry trade having a grave influence on the South Korean economy.

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