China yuan update: China allowing more market forces

The Chinese government would further allow the market to determine the RMB exchange rate and more flexibility to the RMB band, Chinese Premier Wen Jiabao said Wednesday. The yuan is at 7.38 to the USD and is holding steady with the Euro.

China could be moving towards a stronger exchange rate for the yuan long advocated by Europe and the United States to help reduce global economic imbalances, European officials said on Wednesday.

But Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said he was wary of exaggerating the importance of Trichet’s remarks; a shift in the exchange rate was only part of the solution to China’s economic imbalances.
“We do expect a faster pace of appreciation but we warn against getting too excited about the magnitude,” he said.

Zhao Qingming, an economist with China Construction Bank in Beijing, said the course of the yuan could depend on the next generation of China’s top economic policy makers, who will take office next year.

“I think there is great uncertainty both at the level of central bank and the central leadership,” he said. “But we can definitely exclude the possibility of another one-off revaluation.”

Past talk from within China about currency valuation.

China’s economy appears on track to pass the size of the US economy on an exchange rate basis in 2016-2018. It appears China may allow the yuan to appreciate by 10-15% in 2008. If it ends 2007 at 7.3 then that appreciation would put the yuan in the 6.34 to 6.64 range.