Report: Yuan appreciation will be short-lived

China's currency appreciation against the U.S. dollar might prove to be short-lived, as the country's trade surplus will drop from a peak in June and July, and the global economy will become more balanced in the coming years, the People's Daily overseas edition said Monday.

The report by the edition noticed that the yuan, or RMB, has witnessed a strong acceleration in value against the greenback recently, and has appreciated by nearly three percent against the dollar, after China restarted the currency exchange rate formation system reform in mid June.

Most analysts have speculated that the yuan will maintain relatively strong with major currencies prior to the G20 world leaders' annual meeting to be held in South Korea next month. Some investment banks predict it will gain another two percent in value against the dollar by the end of 2010.

But the People's Daily report cited Wang Jun, a researcher at the Chinese Academy of Social Sciences, as saying that China "should not and would not bow to foreign pressure" to quicken the pace of currency appreciation.

"If the yuan rises quickly under joint pressure from the United States and some other nations, that will mean China is manipulating its currency, won't it?" Wang said.

The report also quoted government officials and experts as saying that China is now facing a difficult time in controlling an influx of overseas "hot money" to the country, and if the yuan keeps rising in value, it will attract more speculative hot money to China, which will add to inflation and equity bubbles.

The report said the core problem causing today's global economic imbalances is the "dilapidated industrial mix of the developed countries".

It said the trade policy of the United States restricting export of so-called high-tech products to China is another culprit causing the trade imbalance between the two countries. The report asked Washington to scrap its export control regimes to facilitate freer trade.

China's trade surplus decreased to US$16.9 billion in September, a five-month low, according to figures released by the state's General Customs Administration.

By Jimmy, People's Daily Online