"The price of the yuan appreciation so far has been just too moderate and the trade surplus is related to structural problems, " said Xiao Minjie, an economist with Daiwa Institute of Research.
How can the premise that Yuan appreciation will reduce the bilateral deficit still hold?
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In other words, the impact on the trade deficit of Yuan appreciation in the period 2005-2008 would not be fully manifest until the period 2007-2010.
FORBES: Economists Ignore the Facts in Supporting Chinese Currency Legislation
While the Republican leadership has held up consideration of the bill in the House of Representatives, a slowdown in the yuan's appreciation could renew efforts to pass the bill.
If the two to three year lag theory were plausible, the U.S. trade deficit with China would be falling in 2010, not rising, as the steepest appreciation in the Yuan occurred in 2008.
FORBES: Economists Ignore the Facts in Supporting Chinese Currency Legislation
To add to the protection afforded by capital controls, it will surely discourage the idea that the yuan's appreciation will be steady and speedy.
Analysts said SAFE's move likely reflected the Chinese government's concerns over the yuan's rapid appreciation in recent weeks, but noted that the currency remains one of the bright spots among emerging markets.
Barclays currency strategists Peter Redward and Kumar Rachapudi wrote that the Chinese government tend to rev up appreciation of the yuan ahead of the annual US-China Strategic and Economic Dialogue, which will take place in Washington May 9 and 10.
"As the market no longer sees a straight-line appreciation for the yuan, a lot of Hong Kong exporters receiving yuan as payments are starting to use options to manage their yuan exposure, " said Candy Ho, head of yuan business development in the Asia-Pacific region for HSBC Holdings PLC.
China announced on State TV that the Peoples Bank of China was going to allow fresh appreciation of the yuan, and undertake its bit for global rebalancing.
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An interest rate of just over 4% on yuan deposits compared with 2% on dollars, combined with an expected appreciation in the yuan, offers a seemingly risk-free profit for those who can get money into China.
That implies a slight slowdown in the yuan's recent appreciation.
While most China watchers cautioned that a rapid appreciation of the yuan was not in the cards, the conventional wisdom was that annual increases of 5 percent could be expected.
That means that, even with China allowing only a modest nominal appreciation of the yuan against the dollar, American firms are looking a lot more competitive than they were a few years ago.
The gradual appreciation of the yuan against the U.S. dollar may also have added to concern among exporters, theoretically making Chinese products less attractive, though its pace has been gradual (barely more than 5 percent against the U.S. dollar in one year).
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That would put the global recovery on a steadier footing, especially if a stronger yuan were mirrored by appreciation of the currencies of other Asian emerging economies.
For the buyers, obtaining a higher interest rate than is available from bank deposits, as well as the ability to purchase a yuan-denominated security and to benefit from the appreciation of the Chinese currency that many expect in the coming years are the main attractions of dim sum bonds.
Those that call for the yuan to appreciate faster often cite Japan rapid-fire appreciation of the yen under the Plaza Accord in September of 1985.
Yuan appreciation not only bolsters the buying power of Chinese consumers, but it makes Chinese-based producers and assemblers more competitive because the relative prices of their imported inputs fall, reducing their costs of production.
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China's Mr Zhu says the two sides broadly agree the yuan must continue to strengthen against the US dollar, but they differ on the speed of appreciation.
"This will likely lead to greater yuan appreciation, lifting alongside with it the other emerging Asian currencies, " he said.
Until June 2009 appreciation was largely because of the stronger yuan.
That was a year after the Chinese released the yuan from its dollar peg in June 2010 when its managed appreciation began.
The best guess is that he is pandering to critics in Washington, and that all he really wants is for China to widen the band within which the yuan is allowed to trade, which might produce a modest appreciation.
Most China watchers believe that China will allow the yuan to appreciate steadily against the dollar, and a 7 percent rate of annual appreciation is often cited as a rate that Beijing is comfortable with.
At the same time, issuers command lower coupons on synthetic yuan bonds than dollar bonds, pocketing the difference, though they forego any gains on renminbi appreciation.
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However, a yuan appreciation with a lower dollar might mean a spike in all other Asian currencies as well like the Singapore dollar.
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