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China Bubble About to Burst? Time to Revaluate the Yuan?

**This was an article that was originally posted Feb. 27, 2007 and resurrected today in light of the news the US is increasing pressure on China to revaluate their currency. To learn more about revalution check out our devaluation and revaluation article.***

US politicians and lawmakers are pushing hard for China to revaluate their currency. Why is this important? By revaluating China essentially will force their currency to appreciate. Once that happens their goods become comparatively more expensive to purchase. The economy in China will slow as less countries demand their products. For China this is undesirable if they have the demand to continue their breakneck expansion. On the flip side, it will help America address their trade deficit woes.

But then again, the US has threatened before and nothing has happened, maybe because their economy clout is gone and China is now the powerhouse? I don’t think it’s quite at that level, so maybe this time we’ll see some fireworks….

Here’s what we posted about this situation three years ago, so there’s not indication that these latest threats will do any good…..

Is the honeymoon over? Have countless opportunities to revaluate the currency left China vulnerable? China’s stock market suffered its biggest single-day drop in more than 10 years on Tuesday, sending resource stocks in Toronto falling sharply in morning trading.

The Shanghai Composite Index fell almost 9 per cent to close at 2,771.79 — its largest single-day decline since it fell 9.4 per cent on Feb. 18, 1997 after the death of Communist party elder Deng Xiaoping.

The drop is attributed to profit-taking and speculation of a fresh round of austerity measures from the Chinese government to slow sizzling economic growth.

The Toronto stock market fell more than 200 points early Tuesday morning, as investors worried that the plunge in China could also mean a sharp drop in demand for metals and oil.

Economic data also weighed on the markets. U.S. orders to factories for big-ticket manufactured goods plunged in January by the largest amount in three months.

[tags]china economy, china bubble, china’s foreign exchange, china revaluation[/tags]

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