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As Asia rolls on, a new world order emerges Add to ...

Asia's economy is no longer hot, it's scorching, a shift that will force policy makers in the region to be more aggressive in efforts to contain inflation.

Singapore's monetary authority increased the value of the island nation's currency yesterday after a government report showed gross domestic product expanded at a gravity-defying annual pace of 32.1 per cent in the first quarter, the fastest recorded rate dating back to 1975.

Unlike most central banks, the Monetary Authority of Singapore uses the currency instead of interest rates to conduct monetary policy. Singapore's dollar rose the most in a year after the authority said it would allow "modest and gradual appreciation" of the currency, a move away from its recession-fighting stance of refusing any increase.

China also reported evidence of inflation, saying residential and commercial real estate prices in 70 cities jumped 11.7 per cent in March from a year earlier, a record increase that economists said will force President Hu Jintao's government to take further steps to constrain its housing market or risk a bubble.

The data provide further evidence that emerging Asian economies represent the biggest engine pulling the world economy out of recession, a show of strength that is recalibrating geopolitics. In a demonstration of their new-found heft, Mr. Hu and Indian Prime Minister Manmohan Singh left President Barack Obama's nuclear summit in Washington yesterday for Brasilia to meet with their counterparts from Brazil and Russia tomorrow.

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It's a leadership position that puts extra pressure on the Asian leaders to ensure their galloping economies don't lead to runaway inflation.

Policy makers already have moved to crimp bank lending. But with price pressures continuing to build, economists are betting that Asian governments, including China's, will finally concede that their currencies must rise, loosening tight controls meant to give their exporters an advantage in international markets.

"Asia and the other emerging market economies are getting more concerned about price levels," said Stuart Bergman, director of economics at Ottawa-based Export Development Canada. "We really do want to see them be proactive on inflation. I believe they are. There is renewed credibility in emerging-market central banks."

Singapore is seen as a bellwether for the health of the global economy because the city state is one of the world's biggest trading hubs. It was the first significant Asian economy to report first-quarter GDP numbers and others will soon follow. China was scheduled to release its figures today. A survey of economists by Bloomberg News said that Asia's second-biggest economy after Japan likely expanded 11.7 per cent in the first quarter from a year earlier, which would be the fastest pace in almost three years.

China's target for growth in 2010 is 8 per cent. Economists are betting the stronger-than-expected expansion will force the Chinese government to loosen the yuan's peg to the dollar, which would cool the manufacturing sector and make imports cheaper.

Jim O'Neill, the London-based Goldman Sachs Group economist who predicted a decade ago that Brazil, Russia, India and China would emerge as a new economic force, grouping them together as the BRIC nations, told Bloomberg News yesterday that he thinks Mr. Hu's government could revalue the yuan by between 2 per cent and 5 per cent as early as next week.

China's exchange rate is a long-standing political issue. Many of its trading partners charge that the yuan's fix at 6.83 to the dollar since July 2008 aids Chinese exporters at the expense of factories in countries such as the United States, Europe, and Canada. Mr. Obama told reporters on Tuesday that he thinks the yuan is "undervalued."

Still, the U.S. and others have changed their approach to dealing with China over the currency, which many economists say contributes to a current-account surplus that is unsustainably large. Mr. Obama risked irritating lawmakers by delaying a report that would have forced the administration to determine whether China is truly manipulating its currency.

The idea is to relieve political pressure so that when China adjusts its exchange rate, it can be seen to be doing so for economic reasons, not because it was backed into doing so by the U.S. and others.

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