Lin said that international speculators hope the Japanese and US governments pressure China to revalue the yuan so that they could profit from speculative deals.

A large-margin revaluation would not reduce China's trade surplus or foreign exchange reserves, as the value of the renminbi is not the reason, Lin said. Instead, it will lead to increased imports and decreased exports, which will exacerbate China's overproduction.

It may, in turn, lead to deflation, lower corporate profits, increased bad loans and "could even trigger a financial crisis," he said.

He suggested that China stick to its principle that the yuan's appreciation be independent, flexible and affordable and make it clear that the pace of the revaluation would remain at about 3 percent a year.

The yuan is expected to appreciate by 5-6 percent this year.

(China Daily 02/06/2007 page1)

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