The report says if the People's Bank decides to adjust the exchange rate of yuan, it will most likely happen in March. Also the Hong Kong newspaper Mingbao says that there are currently many versions of research and proposals focusing on the exchange rate of yuan; the most practical proposal is to first expand the exchange rate floating range, and then change the rate-forming mechanism by the end of the year.

By expanding the floating range of the exchange rate, the People's Bank will let the exchange rate of USD to yuan increase from 1:8.277 to 1:7.887. The floating range of the exchange rate will be allowed to expand from five to ten percent by the end of 2004 or early 2005. After that, the bank intends to gradually let the market regulate the exchange rate and eventually let the yuan exchange rate become flexible.

Since joining the WTO and having more open markets, the yuan exchange rate has an influence on the Chinese economy. The fixed exchange rate policy is, in part, a foreign policy, because the yuan can not be traded freely, and the capital controls are still strict.

With the USD getting weaker relative to the Euro, the yuan is also losing ground to the Euro. If the exchange rate policy does not change, it will be hard for the yuan to respond dynamically and find a balance between the Euro and the USD. The result is the United States and Europe collaborating to restrain the Chinese economy. One example is the anti-dumping investigations the United States and European countries have frequently been performing on exports from China.

Meanwhile, Japan is accelerating the establishment of a free trade agreement with the Southeastern Asian countries and South Korea to compete with China. This way these countries will have a greater economic bargaining power with China. If China does not respond to this, its international economic influence will diminish. On the other hand, Japan has been slow in its economic reforms, and fundamental economic changes though overdue are unlikely.

Though revaluing the Chinese dollar will hurt exports, it will help importers. As Chinese natural resources are getting used up, they are depending more on imported metals, petroleum and other raw materials. Though China still currently produces a lot of steel, the source of raw iron depends more and more on imports. Also, China produces a lot of aluminum by electrolysis, however, the raw material, aluminum oxide, depends on imports as well.