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...Although considerably more muted than expected, the answer came on July 21, when the People's Bank of China posted a notice on its website announcing the end of the yuan's peg to the dollar. Citing its wish to "improve the socialist market economic system in China," the bank set the yuan at 8.11 to the dollar?a 2.1% increase in its value?and decreed that henceforth it would trade within a narrow band of 0.3% each day against a basket of (unnamed) currencies. Now that the yuan is allowed to float, even only slightly, its value should better...

Author: /time Magazine | Title: The Yuan Effect | 7/25/2005 | See Source »

...chaos theory, which flaps its wings in Brazil and sets off a tornado in Texas, Beijing's decision portends momentous consequences for the global economy down the road. Scrapping the dollar peg is widely seen by economists as the first step toward a free-floating, and much stronger, yuan. If the yuan continues to appreciate, China's new currency policy could reorder global trade and investment, boost the power of Asian consumers, and address global trade imbalances. U.S. Treasury Secretary John Snow, who had been a vocal critic of Beijing's peg, said "full implementation" of the new policy "will...

Author: /time Magazine | Title: The Yuan Effect | 7/25/2005 | See Source »

...Haier dropped its $1.28 billion offer for Maytag, and a politically controversial $18.5 billion bid by China National Offshore Oil Corp. to buy U.S. oil giant Unocal has run into stiff headwinds after Unocal's board voted to stick with an improved offer from American company Chevron. Revaluing the yuan "buys the Chinese significant political capital," says Hong Kong-based Merrill Lynch strategist Spencer White...

Author: /time Magazine | Title: The Yuan Effect | 7/25/2005 | See Source »

...fear that its factories would become less competitive, which would cost the country jobs and curtail growth in its export-fueled economy. Officials for Chinese companies that compete almost entirely on price, such as those in the toys and textiles industries, say even this 2.1% increase in the yuan's value will hurt sales to cost-conscious U.S. retailing giants such as Wal-Mart and Target. Yu Zhihua, export manager for the Hangzhou Silk and Garment Import Export Corp. in Hangzhou, says her profit margins are so thin already that she can't afford to lower prices to offset...

Author: /time Magazine | Title: The Yuan Effect | 7/25/2005 | See Source »

...Indeed, Deutsche Bank estimates that a 5% appreciation of the yuan would slice 5-10% off the profits of China-based textile and electronics exporters, because they have narrow margins and little power to adjust their prices. The pinch will also be felt by the many foreign companies operating mainland factories. Tony Cheng, a Taiwan businessman who runs a factory in Shenzhen making Christmas ornaments, calls the revaluation "a big blow...

Author: /time Magazine | Title: The Yuan Effect | 7/25/2005 | See Source »

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