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China's currency conundrum

Politicians in the US and Japan are blaming the low value of the Chinese renminbi for all manner of economic ills in their countries and pressing for its revaluation upwards. Yet many of their own manufacturers are benefiting greatly from the low manufacturing costs in China. Speculators will win if the renminbi rises.

Chinese premier Wen Jiabao

OVER THE PAST few months China has come under intense scrutiny because of its undervalued currency. Unfortunately for China's leaders, as US politicians prepare for the 2004 presidential elections they realize that attacking China continues to sound a chord with their domestic audience. They are blaming it for US job losses, ballooning trade deficits and other economic ills. The accusations will not die down soon. And it doesn't seem to matter that many of the arguments are severely flawed.

At a meeting in July with the CEO of a global investment bank, Chinese premier Wen Jiabao (pictured above) was advised to steel himself for intensified criticism in coming months. "We emphasized that the US was gearing up for presidential elections in 13 months' time," says the bank's head of its China operation, who was privy to the conversation between his boss and Wen. The chat was a warning that despite China's leaders making it clear that there would be no revaluation of the renminbi in the short term, the mudslinging and finger-pointing from the US would become more frequent and more virulent in coming months.

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