China May Allow Yuan To Appreciate

China May Allow Yuan To Appreciate

Currency Policy Causes Tension With U.S.
By Peter S. Goodman

Chinese Premier Wen Jiabao said Tuesday that his country's fixed currency-exchange rate would remain "basically stable," state media reported, in an apparent sign that Beijing might allow its currency to appreciate slightly this year to ease trade tensions with the United States.

The premier made the comment in an opening speech to a closed-door gathering of senior government officials and financial regulators in Beijing, according to the state-run China Central Television network. The conference came two days after the Group of Seven industrial nations called for greater flexibility in currency values worldwide -- a message widely construed as being aimed primarily at China.

Hong Kong continued to bid up the price of futures contracts to purchase China's currency, a key indicator that markets are betting that China will allow at least a slight increase in the value of its currency, the yuan.

The gathering of economic policymakers in Beijing focused on discussion of China's fixed currency regime along with plans to revamp the country's state-owned banks, which are holding up to $500 billion in bad loans, state television reported. The agendas of such meetings are rarely disclosed publicly, underscoring the sense that China may be attempting to signal a slight change, or at least is attempting to mollify those assailing the country for holding the line on its currency policy. ...Link