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Date Posted: 20:07 29/11/2004

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What can China get out of the US in return for currency revaluation?

HEAVY SPECULATION on the imminent appreciation of China's currency, the renminbi, has been dominating the press for some weeks now. With allegations that China is now selling its dollar-denominated US treasury bonds in preparation, Premier Wen Jiabao has stepped into the debate, saying that China will not be pressured into revaluing, and would do so only when the time was right. Some, however, speculate that it will do so only when it has extracted enough concessions from the United States government, possibly involving the situation in Taiwan.

Investors on the stock markets were also wondering what was being said during the talks between George W. Bush and Hu Jintao in Santiago a couple of weeks ago. After all, rumours were rife in China's financial community that a visit to China by outgoing Secretary of State Colin Powell shortly before the US election was intimately connected with the decision by the People's Bank of China to raise interest rates on October 29, and that negotiations about revaluation are ongoing. 'This is a strong card that China has,' one stockbroker told us, 'and they were waiting for the right time to play it.'

So what will China receive in return? The stockbroker repeats rumours either that China will be given a freer hand over Taiwan, and that the US will put increasing pressure on the pro-independence wing on the island.

Of course, that visit by Colin Powell, one week before the re-election of President Bush, resulted in criticism of Chen Shui-bian and an unambiguous denial that Taiwan could be an independent state. This represented an end to the policy of 'deliberate vagueness' that has characterized such pronouncements in the past.

Bush's words in Santiago were not quite so explicit, but reaffirmed American support for the One China Policy. Some are wondering about the negotiations going on behind the scenes, and believe that China is holding out for something far more spectacular before it finally agrees to revalue the renminbi.

Of course, ever since the days of Nixon and Kissinger, many such theories emerge during talks between China and the United States. Most recently, a visit by Powell to Beijing on the eve of the invasion of Iraq was supposed to have given China more leeway in its battle against separatists in the west. More preposterously, the US and China were supposedly negotiating on the extradition of bin Laden in order to boost Bush's re-election campaign.

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