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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (5079)	6/27/2005 12:36:17 AM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China refuses to bow to EU and US pressure over currency reform By David Prosser, Personal Finance Editor 27 June 2005 China vowed yesterday to resist pressure from the US and the European Union to revalue its currency, the renminbi. China's Prime Minister Wen Jiabao said cutting the link between the yuan, the underlying currency unit in the country, and the US dollar would cause economic turbulence and destabilise global financial markets. Mr Wen's refusal to give in to international demands for a revaluation of the yuan, which has been pegged at a rate of 8.3 to the dollar for about 10 years, will disappoint the US government and EU officials. They believe the yuan is undervalued against world currencies, which means Chinese exports are artificially cheap; as a result, Western manufacturers are unfairly disadvantaged. In May, the US Treasury Secretary John Snow published a report calling for the value of the yuan to be raised sharply. The US Senate is considering introducing economic sanctions to force the Chinese government to take action. However, yesterday Mr Wen warned the Asia/Europe meeting of EU and Asian foreign ministers that he would not rush into a revaluation. "A great deal of preparation is still needed until we have favourable conditions," he said. "We must avoid economic turbulence and disturbances to the financial markets." The Prime Minister's speech followed similar remarks from Zhou Xiaochuan, the governor of the People's Bank of China. On Saturday, Mr Zhou said "the time is not yet ripe" to revalue the yuan. The US government is determined to continue its campaign for reform, as it attempts to reduce the country's $162bn (£89bn) trade deficit with China. The Senate is discussing imposing import duties on Chinese goods of up to 27.5 per cent. The US Treasury's report in May accused China of jeopardising the global economy with its intransigence. "Current Chinese policies are highly distortionary and pose a risk to China's economy, its trading partners and global economic growth," it warned. The International Monetary Fund has also backed calls for a revaluation. Yesterday, Takatoshi Kato, the IMF's deputy managing director, said China's economy was strong enough to cope with a less competitively valued yuan. "Conditions are favourable for an early move," he said. "The introduction of greater exchange rate flexibility would be in China's own interests." Last week, the Chinese won an unlikely ally in the battle to retain the link between the yuan and the dollar when the chairman of the US Federal Reserve, Alan Greenspan, rejected the American campaign for revaluation. Mr Greenspan said a more highly valued yuan would not reduce the US trade deficit, because consumers would buy cheap goods from other Asian economies instead. The Fed chairman also told the US Senate's committee on finance he did not know of any "credible evidence" that revaluing the yuan would significantly increase US manufacturing activity or lead to the creation of jobs. Currency experts believe the Chinese government will eventually revalue the yuan. Joaquin Almunia, the EU's monetary affairs commissioner, has been lobbying the Asia/Europe meeting for a softening of the campaign against China. Mr Almunia believes a revaluation is more likely if the Chinese government is able to act of its own volition. news.independent.co.uk