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TheStreet Open House

China Eases Currency Controls Slightly

BEIJING -- China's central bank announced Saturday a slight easing of its controversial currency controls. It says it will allow the country's yuan to rise and fall by a slightly wider margin against the dollar in daily trading.

The change could allow a faster rise for the yuan, which Washington and other trading partners complain is undervalued. But any increase will likely be too small to satisfy many critics, and Beijing already has warned that future gains will be limited.

The central bank said it will allow the yuan to fluctuate by up to 1% in value against the dollar each day beginning Monday, up from 0.5% previously.

The bank took the unusual step of issuing a statement in English as well as in Chinese, clearly intending it for foreign audiences.

The U.S. and other governments say an undervalued yuan gives China's exporters an unfair price advantage, swelling its trade surplus and hurting foreign competitors at a time when other governments are struggling to lower unemployment.

Chinese Premier Wen Jiabao, the country's top economic official, said in March the currency might already have reached an "equilibrium exchange rate," suggesting more gains would be limited.

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Wen said the yuan already has gained 30% in value in real terms since 2005.

That increase has failed to satisfy critics. Some American lawmakers are calling for punitive tariffs on Chinese goods if Beijing fails to act faster.

Wen also said the yuan has moved both up and down in Hong Kong trading of nondeliverable forward contracts since September. Such contracts are used by traders to bet on movement of currencies that are not freely traded. They are settled in dollars or other hard currencies.

That suggests that the yuan also might fall in value over short periods following the latest easing of controls.

Communist leaders have promised repeatedly to help struggling Chinese exporters that have been battered by a plunge in global demand, which suggests that the central bank expects its latest move to result in only a modest increase in the yuan's value.

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