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April 10, 2008

China currency stronger than 7 to the US dollar

China's yuan is now stronger 7 to 1 versus the US dollar [6.99 as of April 10, 2008]

The Asia Times discusses the advantages of a strong currency for China.

Beijing may have so far the strongest incentive not to wage any currency wars but to accelerate the pace of yuan’s appreciation. In January, the consumer price index in China went up 7.1% from a year earlier, followed by a 8.7% year-on-year increase in February (Bloomberg, March 28). A major appreciation of the yuan, together with raising the interest rate further, is seen as the most effective way of bringing China's ongoing inflation under control.


A stronger yuan, Yu Yongding [director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences and former member of the country's powerful Currency Committee] writes, will certainly have an impact on China's export volumes, and potentially affect some manufacturing jobs. But the impact will be limited given the size of the Chinese economy. Furthermore, China's imports will become cheaper, thus canceling out any negatives that may come from the reduced exports. Ultimately, such macro-level adjustment will make the Chinese economy much healthier and more competitive.


The NY Times take on the stronger yuan

Many specialists believe the shifting fortunes of the yuan and the dollar are healthy for the global economy because they reflect the reality of a weakening American economy and China’s growing wealth. Before, many economists complained, America was consuming far too much and China was overproducing and not consuming enough.

“This is helping rebalance the global economy,” an economist at Credit Suisse, Dong Tao, said. “But this is also very significant for China’s export sector. We forecast that as many as one third of export manufacturers may close down over the next three years.”


FURTHER READING
The yuan passed 7.3 at the end of 2007

Some are project the yuan to be at 6.45-6.8 by June, 2008

'Inflation in China is the number one policy concern,' said David Mann, currency strategist at Standard Chartered Bank. 'At the moment, the priority is to lower inflation over growth.'

The Chinese government earlier today revised its gross domestic product growth for 2007 to 11.9 percent from 11.4 percent. It was the fifth straight year that GDP expanded at more than 10 percent.

The yuan will probably appreciate to 6.45 to the dollar by the end of June and to 6.10 to a dollar next year, said Mann.


If David Mann were correct then the projection below would have China with Hong Kong and Macau passing the United States economy on a exchange rate basis in 2017.

Updated projection for slightly faster appreciation, US recession and China slowdown this year and next.

Year GDP(yuan) GDP growth Yuan per USD Yuan+ % China GDP China/w HK/Ma US GDP
2006 20.94 7.8 2.7 13.2
2007 23.6 11.5% 7.3 3.24 13.8
2008 26.2 9% 6.35 15% 4.1 4.4 13.9
2009 28.8 9% 5.62 13% 5.1 5.4 14.2
2010 31.6 9.5% 5.11 10 5.9 6.4 14.6
2011 34.4 9.5% 4.64 10 7.1 7.6 15.0
2012 37.5 9.5% 4.26 8.0 8.4 9.0 15.4
2013 40.9 9.0% 3.91 7.0 10.4 10.7 15.9
2014 44.6 9.0% 3.72 5.0 11.9 12.3 16.4
2015 48.2 8.0% 3.54 5.0 13.5 14.0 16.9
2016 52.0 8.0% 3.53 5.0 15.3 15.8 17.4
2017 55.9 7.5% 3.38 5.0 17.2 17.8 17.9
2018 59.8 7.0% 3.20 2.0 19.2 19.8 18.4
2019 64.0 7.0% 3.09 2.0 21.4 21.8 19.0
2020 68.5 7.0% 3.0 2 23.4 23.8 20.1
2021 72.6 6.0% 2.9 2 25.3 25.7 20.7
2022 77.0 6.0% 2.9 2 27.3 27.7 21.3
2023 80.8 5.0% 2.8 2 29.3 29.7 22
2024 84.8 5.0% 2.8 2 31.4 31.8 22.6
2025 89.1 5.0% 2.7 2 33.6 34.0 23.3

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