Inflation and consumer unhappiness are growing, pressuring the Chinese government to do something besides undervaluing its currency, the yuan, economists said.
For years, Washington and international investors have been concerned that China undervalues its currency to bolster trade. Now, faced with consumer edginess, advocates of export-led development in China's government could have a tougher time to fend off pressure to ease its management of the yuan, The Washington Post reported Monday.
While there has been no officially announced change in China's currency policy, the People's Bank of China allowed the yuan to rise more quickly in April than previous months, setting its target level at 6.49 U.S. dollars Friday, the lowest since the early 1990s.
"Beijing seems to be close to officially admitting that yuan appreciation has more pros than cons. This contrasts to their previous reluctance to publicly justify any appreciation," Wei Yao, an economist with Societe Generale China in Hong Kong, wrote in a report. Other economists said China is recognizing internally that undervaluing its currency helps raise local costs and other effects that could affect the social order valued by China's political leadership.
By artificially setting a low exchange rate instead of letting the market drive the yuan's value -- as what happens with other major currencies -- China exposes itself to higher inflation because imported goods become artificially expensive, the Post said. At 5.4 percent, overall inflation is beyond the government target.
Source: iWireNews
