The reports that Snow told some Senators to cool off legislation due to some deal with the PRC surrounding Hu's visit have NOT been refuted by the Treasury Dept. That to me signals that Snow did indeed say such things.
Below is an article by consulting firm McKinsey's China director. He says look at behavior of Chinese cadres-cum-managers to discern the future; and their overseas M&A activity indicates no advance knowledge of a revaluation. He makes a good point that such 'insider' knowledge would be a natural extension of the infonetworks of these Chinese managers.
Snow's reputation is in tatters anyway but he has gone far out on a limb to stay the pesky Congressional hand. The PRC doesn't seem inclined to want to do any favors for the Bushies); Comrade Hu hasn't found a definitive persona among the US public yet and this would be a risky gesture with real domestic economic repercussions. The probability of serious unilateral action by the meddlesome Congress in the event of a "double cross" is hard to gauge.
Will China's leadership stiff Snow, risk the possible "retaliation" for any double cross and restate that no international pressure will force their hand? Or will they make an "adjustment", freeze out the domestic firms, let out some of the currency pressure and put PRC-US trade equation onto (temporary) firmer fundamental structure?
There are literally billions of dollars to be made in wagering correctly on the timing of any revaluation.
Financial Times
Leaders do not expect revaluation
>By Gordon Orr
>Published: July 19 2005 16:48 | Last updated: July 19 2005 16:48
These days, almost everyone seems to have a view on China's exchange rate policy. While politicians, economists and industry lobbyists have joined the public relations battle over a possible revaluation of the renminbi, it is less clear what Chinese business leaders think.
Last week, it emerged that John Snow, the US Treasury secretary, had reportedly told key senators that he expected China to revalue its currency in August before a planned visit to Washington by Hu Jintao, the Chinese president, in September.
In private contacts, the Bush administration reportedly told Beijing it needed to revalue the renminbi by at least 10 per cent against the dollar to prevent protectionist legislation in Congress.
But so far, China's business community seems unimpressed. Take the growing number of Chinese chief executives who are in the process of closing overseas mergers and acquisitions deals. Their actions suggest confidence in the exchange rate holding steady in the medium term. The renminbi has been pegged to the dollar for the past decade.
The value and number of overseas acquisitions have jumped markedly in the first half of this year. Would so many leading Chinese companies be making large-scale investments and acquisitions outside China if they truly believed that a shift in the exchange rate was imminent? Why buy now if things will be cheaper soon? Let us explore this proposition.
Many Chinese business leaders are well connected to the highest levels of the Chinese government, with many having worked in those same corridors of power. For example, Wang Jianzhou, head of China Mobile, was director-general of planning at the ministry of information industries, before moving into the telecommunications industry.
Chinese top managers would not want to look foolish in the eyes of their peers by making big acquisitions that, with a little patience, could have been made at a substantially cheaper price. At this point, we do not see any deals being held back on the basis of an expected exchange rate shift.
In fact, there is little evidence that exchange rate considerations have driven either the price or timing of overseas acquisitions. Instead, commercial considerations appear to be driving the recent slew of overseas deals.
Chinese companies are seeking out investments beyond China's borders to gain access to new growth markets, technologies and management expertise. Some have acted quickly. Others, however, have taken more time, requiring many months of planning and execution. There is no pattern, except that the acquisitions are growing in frequency and size.
Would a revaluation necessarily mean cheaper prices for the Chinese buyers? Perhaps not. A substantial exchange rate shift could trigger even more outbound investment.
Chinese companies would feel even more empowered to go out and make international acquisitions on the back of what they see as a "stronger" Chinese currency. For example, China Mobile, which recently lost an auction for an equity stake in a Pakistani company, might feel emboldened to bid higher.
Meanwhile, companies that have followed organic growth strategies might be tempted to switch to a more acquisitive approach. Chinese telecoms equipment manufacturers such as Huawei and ZTE might supplement their rapid organic growth with acquisitions in Europe and North America, as they try to beef up their capabilities in areas such as research and development, client service and support.
To be sure, a revaluation of the renminbi could make foreign companies appear cheaper in the eyes of the Chinese buyers. But as more Chinese companies seek out attractive acquisition targets, prices will probably rise in line with demand.
Unless Chinese companies were certain that a revaluation would be quick and substantial, it would not figure too highly in deal calculations.
The pricing of a deal has to reflect today's market conditions. Since the future impact of possible events - such as exchange rate adjustments - are uncertain, economists would discount that impact. And the further into the future such an event is, the more they would discount it.
It seems China's leading companies are heeding the advice of their economists. Their actions, at least, suggest we should not expect a big shift in the exchange rate soon. That may be the best guide we have - other than tea leaves, of course.
The writer is chairman of McKinsey Company's Greater China practice