Thursday, May 24, 2007

Large Yuan Appreciation Would Hurt China

A ``large'' appreciation of the yuan would hurt China's economy, Vice Premier Wu Yi said, signaling the nation won't cave in to U.S. demands for faster gains to ease the U.S. trade deficit.

The yuan's value isn't the cause of the deficit, Wu said today at a dinner in Washington attended by U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke. About 85 percent of the trade surplus is generated by foreign companies exporting products from China that are no longer made in the U.S., such as shoes, she added. Vice Premier Wu concluded two days of talks with Paulson yesterday aimed at easing U.S.-China tensions exacerbated by last year's record $232.5 billion U.S. trade deficit with China. U.S. legislators have pledged to proceed with sanctions against Chinese imports unless the yuan climbs faster.
``China will definitely not drop its policy of letting the yuan rise gradually,'' said Xiao Minjie, a senior economist at Daiwa Institute of Research in Shanghai. ``A big yuan appreciation would affect China's exports,'' Xiao said, citing the textile industry. China is concerned faster appreciation of the yuan would hurt company profit and jobs. The textile industry, which accounted for 72 percent of China's trade surplus last year, loses 8.2 billion yuan ($1.1 billion) for every percentage point of currency appreciation, the China National Textile and Apparel Council estimates.

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