Chinese executives are reducing support for a stronger yuan

Chinese executives are reducing support for a stronger yuan, as U.S. critics easing to weaken the dollar and fueling asset bubbles in emerging market economies.

Shen Wenrong, president of Jiangsu Shagang Group Co., the nation's largest private steelmaker, said China should allow only a "token" recognition while the U.S. is "printing money to fuel inflation." Ma Weihua, executive director of China Merchants Bank Co.., Said the yuan should not go "too fast" and the Federal Reserve should show more restraint after announcing plans to buy 600 billion U.S. dollars of Treasury bonds. Jingjiang Xia, general manager of Topshow Outdoor Products Co., which makes baseball caps with logos of companies, said the government will not compromise growth more rapid exchange earnings.

Calls to limit the appreciation of Chinese executives, which in March supported an end to a two-year dollar link, reflecting the concern of the economic expansion may decrease as the central bank raises interest rates to cool inflation rapidly since 2008. Yuan forward contracts show traders are betting the currency will stop before the visit of Chinese President Hu Jintao to Washington next month and up by 2.1 percent next year.

"We expect the yuan to strengthen, but do not want the overly rapid pace of appreciation," Ma told China Merchants, the sixth largest bank by market value, in an interview on Dec. 17 in Beijing. "The U.S. is not taking responsibility. He called on China to adjust its yuan policy, but everyone is suffering from its measures of flexibility."

Forward Rates

Delivery within a month was trading at 6.6180 per dollar as of 11:41 am in Hong Kong, indicating little change from the spot rate of 6.6229. twelve-month contracts are stronger in 6.4863. Analysts predict that the yuan to appreciate another 5.5 to 6.28 percent in late 2011.

China's central bank allowed the currency to rise to 4.5 percent next year, said Rajeev De Mello, head of Asia investment in Singapore in Western Asset Management Co. The yuan has risen 3.1 percent since June 21, when the government ended a policy of fixing the exchange rate at about 6.83 per dollar to protect exporters during the global financial crisis. Thirty U.S. senators requested that the yuan is "appreciate significantly" before Hu's trip, in a letter on December 6 Chinese Vice Premier Wang Qishan.

'Ritmo faster "

"The sounds of U.S. executives probably did not worry China Chinese currency to appreciate more rapidly," said De Mello at Western Asset, which oversees 469 billion U.S. dollars of funds. "A currency appreciation would be too fast for the local economy as it has already been a lot of adjustment policies in place."

Shen, based in Jiangsu Zhangjiagang Shagang, said the government must balance to maintain export competitiveness and reducing purchasing costs of raw materials. imports of iron ore rose 26 percent last month to the second highest level this year, according to government data.

"China should not walk appreciation," said Shen. "As a major buyer of iron ore, has some benefits. But the benefits are limited."

Topshow

Xia in Yangzhou, Jiangsu, based in Topshow said his company raised prices of their hats by 3 percent to account for the yuan in the second half.

"The yuan's appreciation will be gradual," he said in an interview Dec. 22. "The central government clearly understands that a stronger yuan can do to the economy of China. I hope not risk that."

Executives at companies targeting the Chinese market, including Beijing-based computer maker Lenovo Group Ltd., a Shanghai-based China Eastern Airlines Corp. and China Merchants Bank, said in March that a stronger currency would reduce costs imports, increasing the purchasing power of consumers and promote world trade by currency.

buying dollars to weaken the yuan has boosted China's foreign exchange reserves at 2.65 trillion U.S. dollars and flooded the financial system with yuan. The trade surplus exceeded U.S. $ 20 billion for the fifth time in the sixth month of November as overseas sales rose 35 percent from the previous year, the customs agency said Dec. 10.

'Reality'

"Chinese companies have to face the reality of a kind of yuan to rise as the economy grows rapidly and increase foreign exchange reserves," said Zhang Wei, vice director of China Chamber of International Commerce, an organization run by the government to represent exporters and importers, told reporters on 17 December in Beijing. "They should also receive everything needed for the growing international pressure on China to allow the yuan to appreciate."

The People's Bank of China raised its benchmark rate for one-year deposits by 25 basis points, or 0.25 percentage point, on 25 December at 2.75 percent below the November inflation rate of 5.1 percent. The spread between the savings rate and its equivalent in U.S. came to 197 basis points this week, the most since at least 1996, increasing the attractiveness of holding assets yuan.

The economy grew 9.6 percent in the third quarter last year, after growing 10.3 percent in the second quarter and 11.9 percent in the first.

Vice Finance Minister Zhu Guangyao told reporters in Beijing on November 8 Fed's asset purchases could "shock" of emerging markets by flooding the capital.

Dollar Index

Emerging markets funds have taken action on a record of 92.5 billion U.S. dollars and bond mutual funds in developing economies the income of 52.5 billion U.S. dollars this year, EPFR Global, a research firm Cambridge, based in Massachusetts, said last week.

So far, Fed policy has not led to a weaker dollar or faster inflation in the country.

IntercontinentalExchange Inc. 's dollar index, which tracks the greenback against the currencies of six major U.S. trading partners, is up 5 percent from 03 November, when the Fed announced the second round of purchases of debt under its plan of quantitative easing. U.S. consumer prices increased at an annual rate of 1.5 percent in 2011, compared with a rate of 1.6 percent in 2010.

A "stable" evaluation is sufficient to promote the use of yuan in trade and global finance, Hong Weipeng, head of fixed income investments Haitong International Asset Management, said in an interview Dec. 22 in Hong Kong. The unit of China's largest brokerage by assets to establish a fund of 5 billion yuan (754 million U.S. dollars) in August, which invests in bonds renminbi offshore.

Promote stability

"Investors do not want to see the yuan rise 10 percent a month and then go down by 20 percent next year," he said. "In the short term, if global financial markets become more volatile, either due to the debt crisis of the European emerging markets or face higher inflation, then that can slow the yuan's appreciation."

Yuan settlements trade increased 160 percent in the third quarter from three months to 126.5 billion yuan, the central bank said on 2 November.

Sinosteel Corp., the nation's largest iron ore trader, favors those transactions, because of the potential gains in local currency, the president Tianwei Huang said. Ma at the China Merchants Bank said, although the bank is profiting from this business, "too fast" for a finding would be harmful.

"The trend for the yuan to rise is, without doubt, as China's economy has grown rapidly and it is impossible that the country will always maintain as large foreign exchange reserves and trade surplus," he said. "But if the appreciation is very fast, many Chinese companies may go bankrupt."