November 12, 2009

China: Appreciation pressure intensifies

News from Danske Research
The political pressure on China from within Asia has increased with the finance ministers from both Indonesia and Singapore yesterday calling for yuan appreciation and APEC finance ministers today pledging to embrace flexible exchange rates. The Peoples Bank of China in its quarterly report yesterday prepared the ground for a change in China's exchange rate policy. With China's exports recovering, the Chinese leadership is sounding more confident about growth, and with political pressure intensifying, we believe the conditions are ripe for a change in China's exchange rate policy. We still expect the gradual appreciation of the yuan to be resumed by mid 2010. However, the risk it could start earlier has increased. A major one-off revaluation cannot be ruled out, while a complete float is highly unlikely.

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