Yuan must appreciate to curb inflation

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney) -- It's been a remarkable recovery for China, but now the fast-growing economy is fighting runaway inflation, and experts say the country must allow its currency to appreciate to stay on course.

"The right thing for China, the United States and the world is to let the renminbi appreciate," said Barton Biggs, managing partner at New York-based hedge fund Traxis Partners, at the Bloomberg China Investment Strategies Conference Wednesday. "And the best way for the world is a gradual, 7.5% or 8% annual appreciation.

The People's Bank of China took steps last June to allow the yuan to trade more freely against the dollar. But since then, the Chinese currency, also known as the renminbi, has only increased about 3.5%.

Biggs, who calls himself a bull on red hot emerging markets, said if the yuan does not increase in value, China will face the threat of broad inflation, particularly with wages -- a situation that is already playing out.

China has been facing increasing international pressure, especially from the U.S. government, to let the yuan appreciate to improve trade balances.

Ahead of last month's visit by Chinese president Hu Jintao's, Senate Democrats introduced a bill that would impose penalties, including possible tariffs, on nations that manipulate their currencies, namely China.

Sen. Charles Schumer, a Democrat from New York and one of the biggest Congressional critics of China's currency policy, argues that the yuan is artificially undervalued by as much as 40%. He says that's hurting American manufacturers and slowing the U.S. economic recovery.

But Gary Shilling, president of investment advisory firm A. Gary Shilling & Co., argued that a higher valued yuan won't help lower the United State's trade deficit.

"If you see the yuan rise, you'll just see more Chinese export companies move to Vietnam and Bangladesh," said Shilling at the Bloomberg conference, calling the U.S. government's push for a higher yuan a "cheap political shot."

Shilling added that allowing the yuan to trade freely against the dollar could actually lead to further depreciation of the Chinese currency, as it could prompt investors to shift their money into other higher yielding assets. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.26%4.48%
15 yr fixed3.30%3.31%
5/1 ARM3.30%3.35%
30 yr refi4.25%4.45%
15 yr refi3.29%3.34%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,360.85 98.29 0.60%
Nasdaq 4,057.78 23.62 0.59%
S&P 500 1,852.56 9.58 0.52%
Treasuries 2.64 0.02 0.61%
Data as of 1:36pm ET
Company Price Change % Change
Bank of America Corp... 16.00 -0.39 -2.35%
Facebook Inc 59.04 -0.05 -0.08%
Yahoo! Inc 36.11 1.90 5.55%
Intel Corp 26.82 0.05 0.19%
Alcoa Inc 13.28 0.23 1.76%
Data as of 1:21pm ET

Sections

In a bid to maintain its standing as America's most popular car, Toyota unveiled a substantially redesigned -- and less conservative-looking -- Camry at the New York Auto Show Wednesday. More

Observers are warning that risks of a blow up in China's property market are rising, threatening a slowdown that could hurt global growth. More

Yahoo is still in the midst of its turnaround, but investors liked what they saw in the company's first-quarter results. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.