Submitted by: Submitted by princy
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Words: 368
Pages: 2
Category: Literature
Date Submitted: 03/14/2011 03:17 AM
INTRODUCTION-China’s economy is in the eye of a storm. While it is ‘the factory of the world’and has a scorching GDP growth rate (which some believe is unsustainable), italso has a rising inflation problem and has been traditionally practicingintervention tactics to keep the value of its currency down leading to hugetrade surpluses with the world’s biggest consumerist economLately,
China has revised some of its policies – it shruggedoff its decade longfixed system of pegging the Yuan to the Dollar in 2005. The Yuan’s appreciationhas already quickened this year, rising by an annual rate of 9% since April,compared with only 3.4% in 2006. Goldman Sachs predicts a further 9% rise overthe next 12 months. Hong Liang at Goldman Sachs feels that a 10% rise wouldknock off 1.5% from inflation over a course of the next two years. This wouldnot only help to squeeze inflation, it would also help to ease trade tensionswith America, which complains that China's currency is too keenly priced. Butthe Americans are still not happy. Many mainstream American economists arecalling on China to revalue by 20% or more.The Senate Finance Committee wasconsidering drafting legislation that would allow firms to seek antidumpingduties to offset the alleged “subsidy” from the undervalued yuan. The billenjoys wide support and is likely to be passed before the end of the year. y – the Unites Statesof America.
The objectives of our study are:
• To analyze the current economic dependencies between China and the rest ofthe world, which lead to an understanding of a need for the revaluation of theYuan
• To analyze the degree to which the Yuan is undervalued
• To study the potential impact of revaluation of Chinese currency on the USeconomy, particularly the following areas:
* Trade deficit
* o Supply and demand for government securities
* o Consumer spending and interest rates...