From Chinese Press

Much ado about the yuan

(China Daily)
Updated: 2010-10-13 08:03

Although the central bank governor has said China will refrain from revaluating its currency at a fast pace, the past month has seen a rapid increase in the yuan's value. The yuan is expected to rise steadily in the near future, followed by a huge inflow of hot money into China, which would then inflate the real estate bubble further, says an article in China Business News. Excerpts:

A rapid revaluation of the yuan would bring zero benefit to China because it would discourage exporters, devalue the United States Treasuries which China holds and stimulate the inflow of hot money into the country.

In the past five years, the yuan has risen 23 percent against the US dollar. But a steady rise in the yuan's value is against China's interests, for it would attract more foreign hot money to the realty market, which would undermine the macro-control measures the government has taken to rein in the housing market.

This means a boom-to-bust drama would be played out in the housing market, which already has a huge bubble that is extremely sensitive to international developments. Once the bubble bursts, housing process could slump by 50 or even 75 percent causing the real estate market to collapse and dealing a severe blow to the country's banking system. The already bad situation will worsen when the hot money flows out of the country. This in turn will cause China's foreign exchange reserves to shrink and yuan's value to fall drastically, which will neither be in the interest of China nor the rest of the world.

(China Daily 10/13/2010 page9)