China, whose economy has outgrown its biggest rivals' for the past seven years, may no longer need a weak currency to keep its edge. Executives and analysts say a stronger yuan would lift company earnings and economic growth.
Since China pegged the yuan at 8.3 to the US dollar in 1995, cheap exports have fueled a US$199 billion trade surplus and low manufacturing costs have drawn US$308 billion in foreign investment.
China's growing clout as the world's largest consumer market may help it sustain last year's 8 percent economic growth rate, even with a stronger yuan making exports costlier.
Some of China's biggest companies say they'd gain from a stronger currency as they import more and expand overseas. China Eastern Airlines Corp's fuel bill and foreign debt burden would shrink. China Unicom Ltd could buy imported phone equipment more cheaply. Oilfields from Indonesia to Algeria would cost less for Sinopec, the nation's largest listed company.
"Overseas assets would be cheaper for us if the yuan gained in value," said Shao Jingyang, a deputy director at China Petroleum & Chemical Corp, known as Sinopec. A 5 percent gain in the yuan would also cut the cost of Sinopec's planned oil imports for this year by more than US$100 million, based on current prices.
Motorola Inc. and other foreign investors say a stronger yuan wouldn't make them leave. While costs would rise and their exports would become more expensive in the US and elsewhere, China's market of 1.3 billion consumers is reason enough to stay.
A stronger yuan would make Boeing Co planes and General Electric Co turbine engines cheaper in China, boosting their exports and helping to narrow the US's largest trade deficit with any country. Companies such as Wal-Mart Stores Inc, which buys US$10 billion in goods from China each year, may suffer as China-made clothes, computer parts and other goods became pricier.
* China pegged the yuan at 8.3 to the US dollar in 1995
* A 5 percent gain in the yuan would cut the cost of Sinopec's planned oil imports for this year by more than US$100 million.
* The US trade deficit with China widened to US$83.1 billion in the first 10 months of last year from US$70.4 billion a year earlier.
Goldman Sachs Group Inc estimates that the yuan is undervalued by 15 percent. China is growing more open to calls from Japanese Finance Minister Masajuro Shiokawa and other foreign officials to let the currency appreciate, analysts say.
Chinese Finance Minister Xiang Huaicheng said in November calls for a stronger yuan have increased.
"I personally feel some pressure, and this is something the US is pondering," Xiang said.
The US trade deficit with China widened to US$83.1 billion in the first 10 months of last year from US$70.4 billion a year earlier.
The government will widen the range in which the yuan can trade with the US dollar within two years, effectively strengthening the currency by as much as 5 percent, according to six out of 10 economists surveyed by Bloomberg News. Three expect no change during the period, and one declined to give a forecast.
"It has always been in the cards to widen the band," said Jonathan Anderson, Goldman's head of Asia-Pacific economic research in Hong Kong. "We think the time is fairly ripe."
Goldman expects China to expand the yuan's trading range within the next 12 to 18 months, initially moving to a 1 percent band from the current 0.2 percent.
China, which devalued the yuan by more than half before fixing its value in 1995, still has plenty of reasons to resist a stronger currency.
A weak yuan has helped swell the trade surplus in a country that had a US$12.2 billion deficit in 1993 -- especially last year, when the currency weakened in tandem with the dollar, which fell 15 percent against the euro. China's economy has grown an average 8.4 percent in the past seven years, outpacing most in the world.
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