Chinese Currency Forecast To Rise 9% In 2008

The movement in the Chinese currency (the yuan) in January 2008 is equivalent to about a 16% rise on a yearly basis, analysts have already begun to forecast that the Chinese currency could rise up to 9% by the end of the year.

Economic growth in China for 2007 is expected to be reported around the 11.5% mark, with much of that growth coming from cashed up exporters who have invested money into chinese assets.

Beijing is becoming increasingly concerned about domestic inflation, and for good reason, with an 11 year high hit in November 2007. Regulators are concerned that too much money in the financial system is causing the economy to overheat. With cheap Chinese exports far outweighing expensive imports, experts argue that an undervalued exchange rate is the cause of the excess liquidity problem.

Experts hope that appreciation in the Chinese currency and depreciation of the U.S. dollar will help cool demands for cheap Chinese exports while giving the Chinese consumer greater buying power to purchase expensive imports. The appreciation of the Chinese currency will also help international Chinese firms buy assets overseas more cheaply.

The appreciation in the Chinese currency will cause difficulties for some businesses who may be forced to switch their core business of exporting to importing. The depreciation in the U.S. dollar is also causing trouble for some businesses who are forced to complete business transactions in U.S. dollars, with businesses forced to offload U.S. dollars quickly as it’s considered safer to keep your money in yuan.