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Interest rate gap helps manage currency
Updated: 2006-02-12 14:26

China's high domestic savings ratio compared with that of the U.S. is an example of a fundamental factor that cannot be addressed by changing the yuan’s exchange rate, Yi said.

Adjusting the yuan exchange rate would have only a limited effect in reducing the high savings ratio by spurring domestic demand and encouraging imports, he said.

Lawmakers and manufacturers in the U.S. and Europe say an undervalued currency gives Chinese exporters an unfair advantage by making their goods cheaper abroad. China's trade surplus widened to a record $102 billion last year, helping drive a 9.9 percent expansion in the world's fastest-growing major economy. The U.S. trade deficit with China ballooned 25 percent to $201.6 billion last year, a U.S. Commerce Department report said on Friday.

Exports account for about 40 percent of China's $2.3 trillion economy, which last year overtook France and the U.K. to become the world’s 4th-largest.

The yuan failed to jump last month when the central bank reduced its influence by allowing 13 banks including Citigroup and HSBC Holdings to start acting as market makers in the currency.

China on July 21 reset the yuan's value at 8.11 to the dollar, a 2.1 percent appreciation from the pegged level where it had been held since 1995, and started managing its value against a basket of currencies including the euro and yen.

China’s economy may expand 9.8 percent this year as investment in factories, roads and construction increases 27 percent, Peking University's Song said. China's 2006 trade surplus may be little changed at last year’s $101 billion, he said.

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