Little sign yet of a Yuan appreciation
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Back in June the Chinese authorities announced that they were prepared to allow a managed withdrawal of the pegged currency against the US dollar. There has been longstanding pressure from US law-makers that an undervaleud Yuan has given China an artificial competitive advantage in international markets. And that the huge rise in her current account surplus is indicative of an exchange rate that is some distance from a long-run equilibrium level.
Well nearly two months on, the Yuan has moved by only one per cent against the dollar. IMF economists have estimated that the Chinese currency could be undervalued between 5 percent and 27 percent - so there is plenty of scope remaining for a further rise in the Yuan. The key question is how quickly and how far the Chinese will allow their currency to rise. A stronger Yuan ought to help rebalance their economy and tilt them towards relying more heavily on domestic consumption rather than exports as a key source of aggregate demand.
According to a report in the Financial Times, the IMF is forecasting GDP growth of 10.5 per cent for the Chinese economy this year and a current account surplus of 5 per cent of gross domestic product.
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