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Trade balance key to yuan's fortunes

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THE convertibility of the Chinese yuan in terms of tradeable goods next year is definitely achievable.

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This is the view being taken by economists in Hong Kong and Singapore.

Full convertibility on the capital account, as opposed to the current account, however, remains some way off. It might not be practical until near the end of this decade or, indeed, until 2000.

Full convertibility requires the floating of domestic interest rates to reflect movements in capital, instead of the fixed rates now in force.

Zhu Rongji, China's Executive Vice-Premier, was reported at the weekend saying full convertibility of the yuan on the current account was planned for next year.

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In practical terms, China already has attained convertibility on the current account. This has effectively been so for about two years, say economists. The unification of the yuan, between the official and swap centre rates on January 1, 1994, was recognition of progress being made in tradeable goods convertibility.

At Peregrine Brokerage, economist Ma Guonan expects a phased set of changes towards full convertibility on the current account as opposed to a single big leap.

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