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China under Pressure to Free Foreign Currency Markets

The Chinese government`s news agency Xinuha announced Thersday that the 3 largest commercial banks in China have sustained hundreds of millions of dollars in loss, due to the strengthening of the local currency the Yuan. The Bank of China, the second largest lender in the country, reported a loss of $450 million in the fist half of 2006. The China Construction Bank, China`s third largest bank, lost $306 million in the same period. The Industrial and Commercial Bank of China (ICBC), China`s largest bank, hasn`t published exact figures on how much money it had lost due to Yuan exchange rates, but Jiang Jianqing, the bank`s CEO and president, said called the problem a "big challenge".

The 3 banks have large reserves of Dollars and other foreign currency, after the 3 recently completed their initial public offerings (IPOs) in stock markets outside of China. Guo Shuqing, chairman of the Construction Bank of China, said that the large amount of foreign currency the Chinese banks have recently sustained have caused tremendous pressers. Shuqing said he believed that the Chinese regulator and China`s Central Bank should work together to form a freer banking environment.

Exchange rates are one of the more controversial issues straining Chinese-American relations. The United States is putting presser on the Chinese government to lessen constraints on currency exchange in China, saying that China is artificially holding the price of the Yuan about 40% lower than it is actually worth, allowing Chinese manufactures an advantage over American companies.