Are the whispers that China is weighing a revaluation true?
What has the markets whipped up are media reports out of Beijing suggesting China will let its currency appreciate 5% perhaps as early as March, and another 5% in 2005. Yet on Feb. 10, Chinese Premier Wen Jiabao signaled he’s in no great hurry. China needs a cheap yuan to fuel its high-speed growth and keep employment expanding. Also, clobbering the profits of exporters could be doubly damaging, since many are indebted to the country’s already ailing Big Four state-owned banks. So, Beijing is going to thumb its nose at major trading partners? Well, no. But don’t expect anything more than baby steps on currency reform. The futures market is pricing 12-month forward contracts on the yuan at approximately 7.8 to the dollar, suggesting a modest 5% appreciation by February of 2005. The betting is that Beijing will do just enough to quell its critics abroad — but not enough to jeopardize its growth prospects. “Beijing doesn’t want the yuan to go up sharply, but there is a lot of pressure ri
