China Loosens Up on Yuan

Currency move may be concession to US—or attempt to pop a stock market bubble

By J. Kelman, Newser User

Posted May 18, 2007 10:40 AM CDT

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China Loosens Up on Yuan — A Chinese man walks past a billboard showing collage of Chinese Yuan and U.S. dollars in Beijing in this Sept, 19, 2005 file photo. Chinese officials on Tuesday May 15, 2007 warned U.S. critics of Beijing's trade and currency polices against threatening punitive measures ahead of high-level trade talks... (Associated Press)

Just days before a meeting with US Treasury Secretary Henry Paulson, China is taking baby steps toward letting its currency trade more freely. The government also raised interest rates and the reserve on bank loans today, signaling concern over the country's red-hot economy. China's trade surplus—which some American politicos say the undervalued yuan fuels—rose 74% last year.

But the government's strategy may be more than political maneuvering. The Chinese economy is in danger of overheating as money flows out of savings into the stock market. Some see the move as pure economic necessity. "The government can't just sit there and do nothing as deposits leave the banking system,'' says the chief Asia economist at Credit Suisse. (More China stories.)

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