China fights yuan rise

Chinese Premier Wen Jiabao said his
Government can control stubbornly high inflation and rejected any changes to
its tightly managed currency, the yuan.

China’s National Bureau of
Statistics (NBS) has revealed inflation rose 4.9 per cent in February on an
annual basis – the same figure as January.

It remains well in excess of the 3
per cent target set by the Government and was higher than analysts’ forecasts
of 4.7 per cent.

However, the Government has
introduced measures to deal with double-digit food price inflation and the
measures appear to be working after the rate held steady.

The People’s Bank of China has
already lifted interest rates three times in four months in order to curb high
inflation.

However, many analysts have suggested
that by allowing the yuan to strengthen against the US dollar, imports will
become cheaper, therefore reducing costs.

Tensions between the US and China
are ongoing after the US has previously expressed dissatisfaction that China is
keeping the value of the yuan low to help its exporters at the expense of
overseas competitors.

Trade groups have argued that the
yuan, also referred to as the renminbi, is kept up to 40 per cent below what
its value should be against the US dollar.

However, Beijing has
warned that a sudden appreciation in the value of yuan may be harmful to the
Chinese economy and keeping the currency stable is “an important contribution”
to global recovery.

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