China’s Premier Outraged Over RMB Revalue Leaks

August 24, 2005 Updated: August 25, 2015

Imagine making a profit of 3.78 billion Yuan in only 90 minutes! Leaked information from a top secret meeting in China regarding the revaluation of the RMB (Ren MinBi Yuan) resulted in just such a profit for those involved in the scandal.

A total of US$22.8 billion was exchanged into RMB during the time between the Chinese government’s decision to revalue the RMB and before the official announcement at 6:30 p.m. on July 21, 2005.

Schedule of RMB’s Revalue

The financial world had been speculating about the RMB revaluation schedule for some time, with some financiers guessing it would be the beginning of July, and others saying August. While the financial world waited expectantly, the Chinese government had already prepared everything, but was keeping it confidential.

On the afternoon of July 21, the CCP Central Committee Political Bureau held a meeting which finished at 3 p.m., The State Council Secretary announced immediately afterwards that an urgent and confidential state conference would be held at 4 p.m. the same afternoon.

Two conditions were given before the meeting: no external contact would be allowed during the meeting, and no one could leave the room until the meeting finished at 6 p.m.

At the meeting Premier Wen announced that the Chinese government had decided that the exchange rate of the RMB to the US$ would be adjusted to a value of 8.11 Yuan to one US$ (an RMB revalue of 2 percent) starting from 7 p.m. Beijing time on July 21. The RMB would also be moved to a managed floating exchange rate regime based on market supply and demand, with reference to a basket of its major trading partners’ currencies. At 6:15 p.m., Wen’s announcement was passed down to all financial organizations through the People’s Bank of China (China’s central bank). At 6:30 p.m., the announcement was broadcast across the country and the world through China’s CCTV station.

Total US$22.8 Billion Exchanged into RMB

The state conference finished at 6 p.m., but Premier Wen, the deputy premier and members of the State Council stayed back until 11 p.m. to receive feedback from Europe, America, Hong Kong and Southeast Asian countries. They were also waiting for reports from the People’s Bank of China (PBC), the China Banking Regulatory Commission (CBRC) and the State Administration of Foreign Exchange (SAFE). Feedback from Europe, America and Asian countries was relatively peaceful and positive, and the social situation inside the country was also relatively calm.

It was then revealed that between 4:15 p.m. and 5:45 p.m. that day US$28.8 billion had been exchanged to RMB within certain government organizations, with most of the exchanges taking place in financial organizations, party administrative departments’ separate accounts (accounts that are not reported or controlled under government planning, but are under the control of department leaders), state owned enterprises and private tycoons’ accounts from China’s thirteen developed cities including Beijing, Shanghai, Guangzhou, Tianjin, Shenzhen, Fuzhou, Dalian, Wuhan, Nanjing, Zhuhai, Chongqing, Jinan and Xiamen.

Premier Wen Outraged

Premier Wen was outraged after hearing these reports and yelled out: “Conspiracies!” He believed that the conspiracies were internal and had to be investigated. The perpetrators must be apprehended, and the conspiracies eliminated otherwise there would be no peace or stability for the country. Following Wen’s outburst, the following decisions were made: profits gained from speculating on the RMB revaluation during this period of time by internal departmental financial organizations, government department separate accounts, state-owned companies including the mainland accounts of overseas investment companies, were to be frozen; anyone who tried to unfreeze or move the capital after receiving this notice would be prosecuted. In addition, a joint investigation team would be formed by the State Council, PBC, CBRC and Ministry of Supervision (MOS), with the joint team being stationed in the relevant areas.

According to Wen, there are a few ‘worms’ in the financial system, which he referred to as “scum of the nation.” If the government does not investigate, eliminate and prosecute them, he claimed, the nation will be destroyed in their hands.

On the morning of July 22, the State Council office held a teleconference to pass down Wen’s speech.

Postpone RMB Revalue to Hong Kong Dollar

The July 21 Central Committee Political Bureau meeting also decided that the RMB exchange rate should be adjusted two or three times within the year to reach a 5 percent revaluation. That would make one US$ equal to 7.78 RMB Yuan, or in other words, one RMB Yuan would exchange for one Hong Kong dollar. The State Council Research Office had apparently been planning this since March, believing that the RMB and the Hong Kong dollar must be the same value to circulate freely. This policy could be postponed because of the RMB revalue leaks and the subsequent domestic pressure.

Editorial Comment

Whoever leaked the information is almost certainly from the high levels of government, since someone from medium or low levels would have no way to access this information.

The RMB revaluation schedule leak needs to be thoroughly investigated and can probably be traced back to Beijing.

There must be several people involved in the leak. Within 90 minutes the information had been passed to the major cities on the south and eastern coastlines of China. Those involved would have had a close relationship with high level officials in those cities.

The difficulty in the investigation is not the technical issues, since modern technology, communication records and other crime clues make it very easy. Investigation officials could easily use the same techniques as those employed in tracking dissidents and spiritual groups, such as Falun Gong. The difficulty lies in tracing the leak to its root, as this would no doubt expose some “very important people.”

Currently, China’s “Rule by law” still remains at the stage of: “No penalty will be used for Dafu and above” (Dafu refers to a high level government position level in ancient China).

Republished from Chengming Magazine, August 2005.