$1tn ain't what it used to be

16 January 2007 By Martin Hutchinson

The country s burgeoning reserves will force a stronger yuan, but many Asian currencies have been stronger still. Japan and Vietnam, whose currencies haven t appreciated, benefit most from rising Chinese costs and China s Asean trade pact.

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China's foreign exchange reserves topped $1 trillion for the first time, putting upward pressure on the value of the yuan

China and Asean signed a free trade agreement covering services at a meeting between Chinese prime minister Wen Jiabao and Asean leaders in Cebu, Philippines. This follows a free trade agreement in goods signed 18 months ago. The countries also signed an energy agreement that sought to reduce the region's dependence on the Middle East.

The yuan rose 3.4% against the dollar last year, but the Thai baht rose 15.7% and the Korean won 8.6%. The Vietnamese dong rose 3% against the dollar in 2006 while the yen fell 1%.

According to a Credit Lyonnais report quoted in the Economist, average wages for a factory worker, combined with social security costs, came to almost $350 a month in Shanghai in 2005 and almost $250 a month in Shenzhen. Monthly wages were less than $200 in Manila, around $150 in Bangkok and just over $100 in Batam, Indonesia.

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