Un batter d’ali di farfalla a Pechino può causare un tifone…

How a News Story,

Translated Badly,

Caused Trading Panic

Ms. Guan’s Take on the Yuan

Put Into Garbled English

Roiled Currency Markets



May 12, 2005; Page A1

HONG KONG – Guan Xiangdong, a reporter for the China News Service, is more at home writing about tourism than about finance. But she was on duty in Hong Kong last Saturday while more financially savvy colleagues took the day off. And in a bit of enterprise, she put together a story on the impact of a possible appreciation of the Chinese currency. Her sources: bits and pieces of news and analysis gleaned from local newspapers.

Yesterday, her efforts roiled the world’s trillion-dollar-a-day foreign exchange market and sparked panicky emails and phone calls among currency traders and fund managers from Singapore to Stockholm as the U.S. dollar tumbled. The dollar later recovered against major currencies.

How a reporter for an obscure, semiofficial Chinese news service managed to set off such chaos — and losses for traders caught off guard by the market’s gyrations — is a tale of the modern electronic news media gone awry. Like the child’s game of telephone, Ms. Guan’s story hopped from one news outlet to another, changing significantly along the way. It also spotlights the jittery state of currency markets now that the U.S. is putting pressure on China to allow its currency to rise in order to help cut China’s huge trade surplus with the U.S.

“It really freaked the market,” said Claudio Piron, the Asia currency strategist for J.P. Morgan who was on the firm’s trading desk in Singapore when the story broke. Traders instantly dumped dollars and bought any Asian currency they could lay their hands on, mainly Japanese yen, Singapore dollars and Indian rupees. When Bloomberg and its rival news service Reuters started casting doubt on the report, traders just as quickly tried to buy back the dollar. Some traders, said Mr. Piron, “got caught the wrong way around.” He added: “There were a lot of annoyed people.”

Ms. Guan, who says she has been a reporter for 20 years, was flabbergasted by the fuss. “I can’t work out why it’s got blown up like this,” she said. She says that all she did was trawl through Hong Kong newspapers for views on how an appreciation of the Chinese currency would play in the city — views that she attributed to “observers,” not to the newspapers she was drawing from.

The online People’s Daily got hold of her story and farmed it out to a translator who put it into English. The translation took her speculative musings and made them much more concrete. It stated that China had decided to revalue, by 1.26% within a month and 6.03% in 12 months. It gave no source for the story and neglected to mention China News Service. China News Service was set up in Beijing in the early years after the 1949 Communist revolution to channel news to Chinese living outside the country. It maintains close links to the Chinese State Council.

In London, yesterday morning, Bloomberg staff who monitor global currency markets were alerted to the People’s Daily article. It was unearthed by software that Bloomberg uses to automatically search the Internet for new postings that contain key words.

The People’s Daily article was written in clunky English, but the first sentence contained what could be construed as a major development: a revaluation of the yuan or an expansion of the band in which it trades “will be announced” after a meeting between Chinese and U.S. economic officials — a meeting that actually did take place this week.

Based on the article, Bloomberg shot a headline around the world. An editorial staffer familiar with what happened said that before the Bloomberg story was published, a Bloomberg reporter contacted the People’s Bank of China, and it declined to comment. (Later in the day, the bank denied the report.) Weighing that nonresponse along with the assumption that the People’s Daily speaks for the Chinese leadership, Bloomberg decided to go with the story. “The key is that it’s state-owned — the People’s Daily — there it was on the Web site,” said one Bloomberg staffer.

The Bloomberg story flashed across trading screens just as Asian currency traders were ending their day and European markets were opening.

In Stockholm, Frederic Cho, who manages Chinese equities for brokerage firm Hagstromer & Qviberg, used the office loudspeaker system to announce the news to startled colleagues and then started frantically searching for the People’s Daily story on the Internet and dialing journalists and finance-industry contacts in Asia. “It didn’t make sense to me,” he says. What central bank would telegraph a revaluation, with the exact numbers, a week in advance?

In Shanghai, Stephen Green, chief China economist for Standard Chartered Bank, was similarly puzzled. “My initial thought was, ‘This is very strange,’ ” he said. He got on the phone and started calling Chinese regulators. Eventually, his research team dug up the English translation and the original story in Chinese and figured out what was going on. Immediately, he sent an electronic note around the bank explaining that there had been a mistranslation.

European stocks jumped on the People’s Daily story, but quickly reversed themselves when it became clear the story was erroneous.

It once was true that a story in the People’s Daily really did have the imprimatur of the Chinese government. Foreign journalists would study every phrase in search of nuances that could signal a change of policy. But now the official Chinese media, under commercial pressure to compete, often in real time, sometimes struggle with basic accuracy.

After all, reasoned J.P. Morgan’s Mr. Piron, “The People’s Daily is the mouthpiece of the government.”

That logic helps explain why about $2 billion, by Mr. Piron’s reckoning, was traded in the space of a few minutes after the Bloomberg story was issued. The widespread belief is that an appreciation of the Chinese yuan would trigger a wider revaluation of currencies around Asia, where central banks have been intervening massively to keep their currencies cheap and their exports competitive.

The yuan has been pegged to the dollar since 1994. The U.S. and other industralized countries have been pressing Beijing to let the yuan appreciate by allowing greater trading flexibility, a move that would make Chinese exports more expensive in foreign currency terms. The U.S. alleges that by keeping its currency artificially cheap China is giving its exporters an unfair advantage and threatening American manufacturing jobs.

Bloomberg defended its handling of the story. “If China’s government newspaper runs a story saying China is relaxing its currency peg, that is big news, and it’s natural that it should be on Bloomberg,” said Judith Czelusniak, Bloomberg’s spokeswoman in New York. “We’d be remiss in not reporting it,” she said. When the People’s Daily announced their story was a poor translation “we reported that immediately,” she added.

Reuters added to what turned out to be a chain of confusion. At one point, it flashed the news that Bloomberg was quoting the People’s Daily as reporting a yuan appreciation.

It was the sudden downward movement in the U.S. dollar that caught the attention of reporters in the Singapore newsroom of Reuters PLC. “When the markets started moving, we covered that,” says regional editor-in-charge Adam Cox.

Searching for a basis for the movement, he says, his team started hearing from currency-market traders that a Bloomberg report on China’s yuan was responsible. When his team found a copy of the story, says Mr. Cox, publishing a Reuters version attributed to Bloomberg was an easy decision.

(Dow Jones Newswires, a financial news service owned by the publisher of this newspaper, did not publish a report of the supposed revaluation, nor did it pick up the Bloomberg report.)

After yanking the story, editors at the People’s Daily online edition expressed regret, albeit defensively. “We are very sorry that the translation was not accurate — it is our mistake,” said one editor, who declined to be identified. But the editor also took a swipe at the China News Service: “Their reporter should be criticized. She put too many vague sentences in the story, which eventually caused our mistranslation.”

–Matt Pottinger and Qiu Haixu in Beijing and James T. Areddy in Shanghai contributed to this article.

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