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Yuan Appreciation Could Present Risk of Bubble

Morgan Stanley's chief Asia economist Andy Xie warned Wednesday that if the yuan is allowed to appreciate under international pressure, China could be caught in a trap of low growth, low interest rates and low inflation but a strong currency. The result could be an economic bubble such as the one seen in Japan, China Radio International reported Wednesday.

Xie pointed out that the macroeconomic situation in China today resembles that of Japan when its currency was pressed to revalue during its period of rapid growth.

At present, at least US$1.2 billion in "hot money" has entered the Chinese mainland and Hong Kong as speculators gamble on a revaluation of the yuan.

The Japanese yen was revalued in 1985, causing domestic companies to move out of the country and invest in Southeast Asian nations.

The low-interest policy that followed created an economic bubble, with excessive investment in stocks and real estate. Japan is still working to recover from the bursting of the bubble in the early 1990s.

(Xinhua News Agency December 2, 2004)


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