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The time has come for China's yuan to rise: analysts

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The time has come for China's yuan to rise: analysts
March 12,2010



BEIJING -- All signs are pointing to an appreciation of China's currency, perhaps even by mid-year, analysts say, after a cryptic hint from the nation's central bank governor and a limited jump in the yuan's value.

The United States and the European Union, Beijing's key trade partners, have been increasing the pressure on Chinese authorities for months to revalue the currency, which they say is intentionally kept low to boost exports.

Chinese Premier Wen Jiabao again said last week that the yuan, which has effectively been pegged to the dollar since mid-2008, would be kept “basically stable” in 2010, but experts now say there is a fair bit of room for movement.

“The question is when will that be? We still think towards the end of Q2 or the beginning of Q3. Obviously the pressure is rising for a move earlier,” Stephen Green, a senior economist at Global Research in Shanghai, told AFP.

“This kind of decision is made by a small group of people. The economy has recovered; exports have recovered; but not back to their previous good health. The leadership remains cautious,” he said.

Central bank governor Zhou Xiaochuan sparked a storm of speculation at the weekend when he said that Beijing's currency policy was temporary and would be withdrawn “sooner or later” along with other anti-crisis measures.

Alaistair Chan, an analyst for Moody's Economy.com in Sydney, said Zhou had “opened the door to movement on the yuan-dollar peg” — an opinion echoed by many experts.

Those who back a stronger yuan say the stars are aligned for a quick move.

China returned to double-digit growth in the fourth quarter of 2009, exports have soared since December — up 45.7 percent year-on-year in February — and inflation and bubble fears, which would ease with a yuan hike, are mounting.

“With such high export growth, pressure on China's peg to the greenback could be escalated rapidly in months ahead, and we expect by the middle of this year China could shift ... to a new regime,” Bank of America-Merrill Lynch economists said Wednesday after the release of the new export data.

Zhou and other officials have however repeatedly spoken about the “uncertainties” facing China as it powers out of the global economic crisis, indicating they are hesitant to upset the status quo too abruptly.

Beijing's Communist leaders are also extremely wary about doing anything to hinder the rebound in exports — upon which the world's third-largest economy is still largely reliant — and the 90 million jobs attached to the sector.

Beyond the complexities on the domestic front, the yuan has become a political football, especially in China's relations with the United States — already unstable over a host of other issues, from Taiwan to Tibet.

The economies of the two countries are inextricably linked, with China the largest holder of U.S. government debt.

Sebastien Barbe, head of emerging markets research and strategy for Calyon in Hong Kong, said something has to give, predicting an appreciation in the second quarter of this year, maybe even in March.

“It will happen. The window of opportunity opened when exports regained strength,” said Barbe, who noted that the yuan notched its biggest daily gain in a year last month — a one-day 0.1 percent jump.

He warned the recent rise of the dollar, which led to an appreciation of the yuan against other currencies, could make any further action difficult to swallow for China's powerful exporters.

But he said an appreciation would come sooner rather than later if Beijing wanted to keep speculators from pouring so-called “hot money” into the economy, making a quick profit and then retreating.

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