Word: yuan
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...company's pain is another's pleasure. The net effect on some sectors will be positive. China's automakers, for example, rely heavily on parts made abroad and export few cars. The stronger yuan will effectively lower their costs by reducing their outlay for tires and other imported components. Meanwhile, firms that have been hurt by the rising price of oil, such as airlines, will also get relief: oil is priced in dollars, so companies earning in yuan will see their energy costs decline by 2.1%. In fact, China's macroeconomic landscape is expected to remain virtually unchanged by this...
...short run, at least, China's revaluation of the yuan should give the rest of Asia a little breathing space. In order for their industries to remain competitive with China's, central bankers throughout the region have been trying to keep their currencies from appreciating against the dollar?an increasingly difficult challenge as their economies strengthened. Yuan reform could remove the first log from the logjam?the Japanese yen, Korean won and Thai baht all rose against the greenback immediately after China revalued. And within an hour of Beijing's announcement, Malaysia ended its 7-year...
...Economists hope that China's modest revaluation will ripple gently through Asia and the rest of the world. By giving scope for Asian currencies to strengthen, economists expect that the yuan's rise will effectively boost consumer-spending power throughout the region, because imports will become cheaper and interest rates will tend to remain low. In this way, the reform of the yuan could usher in a major shift in the way the global economy works: the knock against Asia is that it saves too much and spends too little, while the U.S. spends too much and saves too little...
...Still, this initial yuan adjustment will do very little in itself to address China's yawning trade gap. Merrill Lynch predicts that China's trade surplus could exceed $90 billion this year?nearly three times larger than in 2004. U.S. critics of China will likely keep agitating for a full float of the yuan?mean-ing that it would trade at whatever exchange rate the market determines. "We expect more," said U.S. Senator Charles Schumer, one of the sponsors of the bill that would impose a punitively high tariff on Chinese imports...
...Economists predict that the Chinese government will gradually allow the yuan to appreciate?Deutsche Bank expects a 10% gain against the U.S. dollar over the next two years. And as the Chinese currency strengthens, the economic consequences become harder to foresee and control. Hot money could pour into China from speculators looking to profit from additional yuan gains, undoing Beijing's efforts to curtail excessive spending and lending in overheating sectors of the economy such as real estate. Also, if the yuan goes up by 10%, "you start to worry about China's competitiveness," says William Fung, managing director...