Over the past few months, the strength of currency inflows into China―via both its trade surplus and inbound financial investments―implied that the yuan should have appreciated strongly.The head of a currency desk at a foreign bank in Shanghai says the central bank, acting through proxies, appeared to restrain it."Whenever the yuan rose to 6.45 (against the dollar), big Chinese banks came in to stop it," he says.Without an open capital account, all prices in China's markets end up skewed.Stocks in Shanghai and Shenzhen trade at a premium of roughly 30% over stocks in the same companies listed in Hong Kong.Few dare to go against the state. The China head of a global hedge fund reports that one unusual aspect of the mainland is that securities regulators conduct random inspections,turning up without warning and demanding answers to probing questions. "They would only do that in New York if you're under arrest," he says.Yet the controls around China's markets can exert a pull of their own.Whereas China trails America in the size of its stock and bond markets, it is, by one measure, ahead in commodity futures.The number of contracts traded last year on its main exchanges (in Dalian, Shanghai and Zhengzhou) was six times higher than on America's cme Group's exchanges. In terms of value they were roughly equivalent.
