It recently superseded Germany as the world's third-largest economy on a US-dollar-adjusted basis. The Asian powerhouse's market clout needs closer inspection, especially if one considers its swelling trade surplus with the US and to a lesser extent, its increasingly competitive presence in Asian region.
Its foreign currency reserves are now the world's largest, having this year pipped Japan's US$trillion-plus portfolio to the post. (Russia comes a distant third with US$300bn in reserves.) The rest of Asia (ex-China and Japan) has another combined US$1trillion.
All of this is a long way from the financially stressed times of the Asian currency crisis of 199798.
It's no surprise that China's currency continues to appreciate against the US dollar. It's a process that began in July 2005 when the Chinese central bank formally revalued the currency to a floating peg regime.
From then on, buttressed by swelling trade surpluses, the Chinese yuan continued to appreciate, with various economists suggesting there is more to come. The consensus is that it remains 20 to 30 per cent undervalued compared with the US dollar.
Meanwhile, since the beginning of 2004 the Australian dollar has merely traded sideways in a rough 5.7 to 6.6 yuan band, suggesting a degree of rate stability.
It's the same situation with Australia's other Asian trade partners. The Malaysian ringgit and Singapore dollar are keeping within broad ranges established at the outset of 2004.
As INTHEBLACK goes to press the Korean won is right in the middle of its five-year range relative to the Australian dollar.
While the US dollar trade imbalances persist and continue to pressure the yuan higher, this has not come through necessarily as fundamental misalignments among the other Asian regional trading economies.
Asian currency flexibility will now ease the adjustments to market-determined foreign exchange rates.
The yen is a special case. Its super-low interest rate structure has been lagging behind the region's exchange rates. But this is necessary, as the Japanese government is still trying to reinflate its otherwise financially inhibited economy.
The intra-Asian currency trends have been quite stable the past few years, and this implies there are no significant stresses in the exchange rate grid there.
The rise of the yuan against the US dollar has allowed most other Asian currencies to also rise to the US dollar without necessarily losing competitiveness with China, even with its currency in a still-undervalued state. If anything, the floating of the yuan in 2005 has allowed most Asian currencies to appreciate without too much intra-Asian financial or currency instabilities ensuing. It's a far cry from the dark days of 199798.
And if the swelling surpluses of the region are to continue, the prospect of firmer currencies may in fact become the norm rather than the historical exception.
Peter Pontikis is the treasury strategist for Suncorp and a member of CPA Australia. The views expressed in this column represent his analysis and do not purport to represent the views of Suncorp Banking.
