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April 08, 2010

China Rumored to be Within Days of Again Allowing the Yuan to Appreciate

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A New York Times report late Thursday that cited unnamed sources as saying the Chinese government is within days of announcing a revision of its currency policy also spurred late-session dollar declines in the onshore and offshore markets

Xinhua- China's central bank governor Zhou Xiaochuan indicated last month the current exchange rate policy was part of the country's stimulus package, and the country would cautiously choose the timing to move from the "special policy" to a "regular policy."

The NY Times gathered some economists to analyze the impact and meaning of China allowing its currency to appreciate.



The general view is for 4-8% appreciation in the currency over one years time. The move will help China control inflation. It would take a 15% move to start significantly lowering the trade deficit with the USA. A more important factor in lowering the trade deficit would be for China to adopt more policies that increase domestic consumption.

China needs several years to make what will be a difficult adjustment toward a more balanced economy, but with high unemployment in the U.S. likely to persist for several more years, it is not clear that the U.S. will be willing to wait.

The United States must move beyond a singular focus on currency to talk about many other factors shaping our trade with China. Two cost distortions on the Chinese side stand out: underpriced borrowing costs for state-related firms; and subsidized research and development costs due to lax intellectual property rights enforcement. That said, the currency move will help, not hurt, and if other emerging markets in Asia follow China’s move — as is expected — our export opportunities will be bolstered notably.

4-10% increases per year will allow China's manufacturers to adapt and become more efficient while not killing the average or good producers. 4-10% increases per year will be a stimulus to chinese consumers as their earnings will buy more.

      China  GDP  Currency China              
Year GDP   Growth USD-RMB GDP USD  USA GDP 
2009   32.8   8.0    6.8    5.0      13.9
2010   35.4   10.9   6.6    5.6      14.0
2011   40     9      5.6    7.2      14.2
2012   43     9      5.1    8.6      14.5
2013   47     9      4.7    10.1     14.8
2014   51     9      4.2    12.4     15.2
2015   55     9      3.8    14.8     15.7
2016   60     9      3.5    17.5     16.2
2017   66     8      3.2    20.8     16.6
2018   71     8      3.0    23.9     17.1
2019   77     8      3.0    25.8     17.6
2020   83     8      3.0    27.9     18.2
2021   90     8      3.0    30.1     18.7
2022   97     8      3.0    32.5     19.3
2023  105     8      3.0    35.2     19.9
2024  113     8      3.0    37.9     20.5
2025  122     8      3.0    40.9     21.1


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