Don't Expect Yuan To Rise Much, China Tells World

But the word from China's central bank on Tuesday reinforced the voices of economists here and abroad who have counseled not to make too much of the slight change in how Beijing values its money.

"Simply put, we don't see any effect whatsoever of a 2 percent revaluation on exports or imports," Jonathan Anderson, chief economist at UBS Investment Research in Hong Kong, wrote in a recent note to investors. Anderson, who has been among the more accurate China watchers in recent months, wrote that it was "hard to see any effect at all" on U.S. consumers and manufacturers, or on China's rate of economic growth.

Even a larger shift in the value of the yuan would probably have little impact on U.S. manufacturers, because most of China's export growth is in products that have not been made in the United States in large scale in many years. Chinese workers who once earned $1 an hour will now make $1.02 -- hardly an equation that will prompt U.S. factories to dive back into the labor-intensive work of making toys, T-shirts and furniture.

Chinese officials have tried to deliver that message themselves in recent days to temper expectation of further revaluation.

"China's exchange rate reform won't have too much influence on U.S. deficits," China's central bank governor, Zhou Xiaochuan, said over the weekend.

Those anticipating a significant readjustment and change in the global economy have focused on how the central bank said it would now determine the exchange rate. In place of the fixed peg to the dollar, China said it would link the yuan to a basket of currencies while allowing daily trading within 0.3 percent of the previous day's closing price.

Some analysts construed that to mean that the currency might float up by 0.3 percent each day, increasing by as much as 3 percent over 10 days. Others speculated that the shift to the basket would mean that China would sell significant holdings of dollars as it added euros and Japanese yen, altering the prices of all three currencies and reducing demand for U.S. bonds.

But Chinese analysts said such expectations were based on a fundamental misreading of the new system and the intentions of China's leaders to maintain a largely stable exchange rate to ensure that there are no shocks to the system. China has yet to say what other currencies will make up its new basket and how their values will be linked to the yuan's -- information that many analysts assume will never be disclosed, to keep speculators off guard.

The new system gives China's leaders the ability to set the yuan's currency however they like, without disclosing their rationale. Far from a mathematic formula, the new exchange rate is a kind of guideline that the central bank can use at its discretion, analysts said.

"The media has been overreacting on the currency issue," said Zhang Liqun, an economist at the Development Research Center in Beijing, a think tank attached to China's State Council. "The central bank has adopted an opaque method on currency management. It's going to operate within a black box, which will be very difficult to grasp."

The strongest message China's central bank has delivered has been heard in the currency markets: On Friday, the first trading day after the announcement, China's currency was worth 8.11 to the dollar. On Tuesday, it was at 8.1099, according to the State Administration of Foreign Exchange.

Staff writer Paul Blustein contributed to this report from Washington. Special correspondents Eva Woo and Jason Cai also contributed.