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The year of the rising yuan?

The year of the rising yuan?
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China will let the yuan rise about five percent against the dollar this year to combat inflation, according to a report in an official newspaper.

At the same time a former adviser to China’s central bank said the country does need to free up the currency.

However a top Commerce Ministry official warned that any appreciation would do little to narrow China’s trade surplus with the United States.

That is a constant irritant in the relationship between the world’s two largest economies.

The yuan’s gains would be particularly strong in the first half of this year, the China Securities Journal said in a front-page editorial.

The Chinese-language newspaper is a leading voice on domestic economic affairs. Its views do not represent official policy, but do shed light on thinking in Beijing.

Vice Commerce Minister Jiang Yaoping said appreciation would have limited impact on reducing China’s trade surplus with the United States.

Jiang noted that much of the imbalance was explained by the processing trade in which multinational companies import intermediate goods and assemble them as finished products in China before exporting them to the United States.

In a magazine article, Yu Yongding, a former adviser to the People’s Bank of China, said the central bank must reduce its intervention in the currency market to let the yuan move in line with market forces, which would help cap the growth of the country’s foreign exchange reserves.

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