The Wall Street Journal reports about some unusual comments by China's Minister of Commerce, Bo Xilai, who admits China's ever-surging trade surplus is problematic for the overall economy, and says a 5% annual increase in the yuan would help the imbalance without hurting trade. The yuan appreciated 3.4% and 2.6% against the dollar in 2006 and '05, respectively, according to a report issued yesterday by the Ministry of Commerce, but the gains reportedly "have had no obvious impact on China's imports, exports or foreign investment." China's 2006 trade surplus jumped 74% in '06 to $177.47 billion, a new record. Chinese economists are increasingly worried the imbalance is driving inflation upward, now at 1.9%. Also of concern is how much of an impact the imbalance is having on surging domestic stocks, real estate and industrial investment. Last, but not of least importance is China's deteriorating political relationship with the U.S. and E.U. over trade related matters.
• Sources: The Wall Street Journal
• Related commentary: China's Central Bank Still Trying to Tame the Dragon, China's Central Bank: Fed Rate Cut to Lift Yuan; Inflation Concerns, Despite Incredible Growth, China's Markets Account For Small Percent of GDP, Chinese Stocks Dropping -- Correction or Breather?
• Potentially impacted stocks and ETFs: Currency ETFs: PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE). Bond ETFs: iShares Lehman Aggregate Bond (AGG), iShares Lehman 1-3 Year Treasury Bond (SHY), iShares Lehman 7-10 Year Treasury (IEF), iShares Lehman 20+ Year Treas Bond (TLT), iShares Lehman TIPS Bond (TIP). China ETFs: China Fund (CHN), Greater China Fund (GCH), iShares FTSE/Xinhua China 25 Index Fund (FXI), JF China Region Fund (JFC), PowerShares Golden Dragon Halter USX China (PGJ)
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