Time For China To Revalue The Yuan? (GS, GT, X)
February 16, 2010 1:15 AM
Jim O'Neill, Chief Economist at Goldman Sachs Group (NYSE: GS), believes China may allow its currency to strengthen by as much as 5 percent in an effort to prevent its economy from overheating.
O'Neill told Bloomberg Monday that after the People's Bank of China raised its reserve requirements for the second time in as many months on February 12, a currency apprection could come at any time.
Chinese policy makers are looking to slow credit growth after the country grew at its fastest clip since 2007 in the fourth quarter. Beijing officials, however, have resisted raising the yuan, keeping its value steady since July 2008.
A weaker yuan makes China's exports more competitive in the global economy. Policy makers in the U.S. argue that Beijing's exchange rate policy has hurt U.S. companies' exports such as Goodyear Tire (NYSE: GT) and U.S. Steel (NYSE: X).
O'Neill is famous for coining the terms "BRICs" in 2001 before the emerging economies of Brazil, China, India, and Russia began to grow rapidly. He believes China is overheating and current GDP growth is in the range of 12 to 14 percent.
With record lending, robust economic growth, and growing investor concern about asset bubbles in the country, there may never be a more prudent time to revalue the yuan and help maintain stability in the global financial markets.
