(Bloomberg, Nov 29, 2006) The Chinese government won't allow faster gains in the yuan than those seen this month because it needs to create factory jobs for rural laborers, said Donald Straszheim, vice chairman of Roth Capital Partners LLC.

``A persistent, gradual, rather than precipitous, strengthening in the yuan is most likely,'' Donald Straszheim, vice chairman of Roth Capital, said today in an interview. ``China wants to protect jobs for its migrant workers.''

Quicker yuan appreciation may slow exports, which made up 35 percent of the economy last year, and put factory laborers out of work. The yuan climbed 0.5 percent in November, as the central bank demonstrated greater exchange-rate flexibility before a visit to China by U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke next month.

The yuan today rose as much as 0.08 percent to 7.8380 against the dollar at 12:15 p.m. in Shanghai, taking gains to 5.3 percent since the government ended a decade-old link to the U.S. currency in July, 2005, according to data compiled by Bloomberg. Newport Beach, California-based Straszheim predicts the yuan will advance by 5.6 percent to 7.40 by the end of 2007.

He attributed this month's performance to the visit of Paulson and Bernanke, who will meet with Chinese officials in Beijing on Dec. 14 and Dec. 15. The currency gained 0.3 percent against the dollar in October and 0.6 percent in September, the last time Paulson visited China.

Rural Migration

U.S. Senators, such as Charles Schumer, say an artificially depressed yuan is the cause of the loss of American jobs and a widening trade deficit. China has its own priorities, with 177 million Chinese migrants moving from the rural areas to the cities in the past decade, Straszheim wrote in a report. Another 300 million may seek work between 2006 and 2025, he wrote.

China won't resolve trade problems ``in a hurry because the jobs are too valuable,'' he said. Roth Capital, founded in 1984, provides investment banking services and focuses research on China-U.S. economic relations.

Exports helped the economy of China expand 10.4 percent in the third quarter, after growing 11.3 percent in the previous three months.

Paulson said yesterday at a conference in London that a stronger Chinese currency will help resolve the ``tension'' in trade ties between the U.S. and China. The U.S. trade deficit with China reached a record $23 billion in September, from $22 billion the previous month.

Sales overseas have sent China's trade surplus to an all- time high of $23.8 billion in October, driving foreign-exchange reserves to $1 trillion, the most for a single nation.

Assuming China's trade surplus with the U.S. reaches about $200 billion in 2007, a quarter of that may be diversified into non-dollar assets, Straszheim estimated. The bulk of that $50 billion will be denominated in the euro and yen, he said.

Source:Bloomberg