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Adviser warns on huge rise in yuan
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A big Chinese currency revaluation would invite speculation and damage growth, said Fan Gang, an adviser to the People's Bank of China.


Sharp increases in the yuan's value would trigger "large speculative capital inflows and outflows that will kill China's growth and financial stability," Fan, a member of the central bank's monetary policy committee, said at an investment forum in Seoul yesterday.


Officials from the Group of Seven nations have increased pressure on China to allow the yuan to appreciate more and take the burden off other currencies. French Finance Minister Christine Lagarde said on Sunday that the yuan causes "tensions," Bloomberg News reported.


"What would happen after a large - say 40 percent to 50 percent - appreciation of the yuan? Another request in two years?" Fan said. He was referring to United States legislators' calls for bigger gains.


Stronger currency


The yuan has climbed about 11.5 percent versus the US dollar since a fixed exchange rate was scrapped in July 2005.


China's economy grew 11.5 percent in the third quarter as record trade surpluses pumped in cash.


A stronger currency would make exports more expensive, staunch the inflow of money and ease tensions with trading partners.


The US dollar is likely to keep falling, a "problem" for the yuan, Fan said. Central bank Governor Zhou Xiaochuan said on Monday China supports a strong US dollar.


The greenback has dropped to records against the Euro and the Canadian dollar this month.


Fan underscored the potential cost to China in job losses from a currency revaluation, denied the yuan was responsible for global trade imbalances, and said the nation's priorities were long-term growth and stability.


He also said the government should speed up tax changes to curb a stock market bubble, adding that several measures are being prepared. The key CSI 300 Index has more than tripled in the past year, even after declines since mid-October.


(Shanghai Daily November 21, 2007)

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