The Trouble With Yuan

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NEW YORK: By devaluing its yuan, China would drop an economic bomb that would push the rest of Asia further into recession and do immediate damage to U.S. stocks. So far, Beijing has been a rock, insisting that standing firm on the yuan is as good for China as it is for the rest of us. But with the yen slipping to new lows nearly every day, the protestations of China's rather opaque government haven't stopped traders and investors everywhere from quaking in their Kenneth Coles.

"As Japan's yen falls, the region's other currencies fall with it," says FORTUNE writer Nelson Schwartz. "China's exports are facing stiff competition from the rest of Asia. China may decide that boosting their own exports with a devaluation may be the only way to restore growth." Devaluation would give China's economy a temporary boost until its neighbors inevitably devalued to keep up, and Beijing knows that. But across China, unemployment is rising and its people are getting restless. Woe betide the rest of us should Beijing finally listen to them.