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Chinaconomy Update

***US Says Yuan Revaluation Imminent… Not So Fast, Say Chinese: Chinese president Hu Jintao is set to visit Washington in September, which must mean China is about to finally revalue its yuan currency, right?

Wrong. A report in today's Financial Times says that certain members of the Bush administration were so convinced that China would adjust the yuan in August in anticipation on Jintao's visit, they managed to persuade several key US senators to postpone a vote on a bill that would impose a whopping 27.5% tariff on Chinese imports until a decision is reached.

China has fixed its currency at 8.3 yuan to the US dollar since 1998 - a level that many around the world say is artificially low and creates unfair trade imbalances. The US trade gap with China swelled from US$14.7 billion in April to US$15.8 billion in May. Since China's economy is booming and its goods remain so cheap, the US government wants China to revalue the yuan upward by about 10%.

As it stands, the current yuan-dollar peg is leading to an incredible explosion in China. June's trade surplus galloped to US$9.6 billion, racing past estimates that called for US$8 billion. That's over five times bigger than the US$1.8 billion surplus posted in June 2004. The total surplus for the first half of 2005 was US$39.6 billion, versus a deficit of US$6.8 billion over the same period in 2004.

According to a forecast in International Business Daily, "China could post a record trade surplus of more than US$70 billion this year, versus US$32 billion in 2004." And, though a revaluation of the yuan is sure to happen - perhaps sooner rather than later - the fact is that the 3% to 6% expected adjustment is not going to be enough to hurt China very much.

Apparently, China is considering a "Singapore-style" revaluation, where the yuan is pegged to a basket of world currencies. But the names of those currencies would not be made public.

And in contrast to the US government's optimistic view that a currency revaluation is coming any day now, China echoed a familiar refrain: "There is no timetable."

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