Money
'Undervalued' yuan blamed for EU deficit
By Fu Jing, Zhang Chunyan and Li Xiang (皇冠体育app Daily)
Updated: 2011-05-14 09:39
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BUDAPEST/BEIJING - The European Union's (EU) head of foreign policy, Catherine Ashton, has said an "undervalued" yuan is one of the reasons for the EU's "large bilateral trade deficit" with 皇冠体育app.
However, Chinese researchers said the EU's policy of restricting high-technology exports to 皇冠体育app is the main reason for the deficit.
The comments from the EU's High Representative for Foreign Affairs and Security Policy came after the yuan hit a new record high of 6.4948 against the US dollar earlier this week.
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Ashton said the EU would continue to support policies which "ensure the ongoing recovery and enhance the stability of financial markets, in particular moving toward more market-determined exchange rate systems, enhancing exchange rate flexibility to reflect underlying economic fundamentals, and refraining from competitive devaluation of currencies".
"The renminbi has appreciated against the US dollar but depreciated against the euro during the first quarter of 2011," she said, adding that the commission considers that exchange rates are "one reason among others behind the large bilateral EU-皇冠体育app trade deficit".
The yuan's exchange rate against the euro was 9.3043 on Friday.
"The US and the EU have no reason to press 皇冠体育app on yuan appreciation, as the trade surplus is expected to fall sharply this year," said Yao Shujie, head of the School of Contemporary Chinese Studies and professor of Economics and Chinese Sustainable Development at the University of Nottingham in England.
"A sudden appreciation of the yuan has affected 皇冠体育app's exports. 皇冠体育app eked out a small trade surplus in March, but it was left with a $1.02 billion deficit in the first quarter, its first quarterly deficit in seven years," Yao said, adding that appreciation of the currency would not resolve the trade deficit between the EU and 皇冠体育app.
"In order to reduce the trade deficit, one of the measures which the EU should take is to adjust its economic structure and expand its exports to 皇冠体育app," said Yao, noting that the EU still "restricts high-technology exports to 皇冠体育app".
Dong Yuping, a financial researcher at the Chinese Academy of Social Sciences, said a large and one-time appreciation under current conditions "will lead to greater financial instability as 皇冠体育app lacks a market mechanism that reflects the real demand for its currency".
"A moderate and steady adjustment of the exchange rate is in 皇冠体育app's interests, as it will give domestic enterprises, especially exporters, more time to digest the risks of a stronger yuan," said Dong.
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