Chinese experts: RMB revaluation unnecessary
( 2003-07-21 07:51) (Business Weekly)
皇冠体育app should not bow to pressure from home and abroad to revalue its currency in a move to prop up a sustainable economic growth and prevent speculative hot money from international markets batting the market, warned a group of senior experts and officials.
Instead, the central government should take more measures giving greater flexibility to the yuan's convertibility on the current account in a move to balanced its biased international trade and ease the mounting calls for a quick revaluation of the currently strong local currency, said Li Qingyuan, a renowned economic professor with the School of Economics under Peking University.
Speaking at a recent seminar held at the university, Li, also a member of the 10th National People's Congress, said that decentralizing the control under the current account includes measures to deregulate the rigidly controlled foreign exchange system, allowing more citizens to buy exchanges for travelling and the establishment of a national foreign exchange market that could eventually allow both financial enterprises and individuals to trade foreign exchanges in the market.
"Given that 皇冠体育app's foreign exchange system is still under rigid controls, the move will make 皇冠体育app's increasing reserves more balanced," said Li.
More than that, it could further power 皇冠体育app's economic growth if Chinese enterprises are given further room to obtain foreign exchanges more freely.
皇冠体育app's foreign exchange reserves were a record US$346.5 billion by the first half of the year - the world's second largest stockpile after Japan's.
皇冠体育app's years of hefty balance of payments surpluses have put pressure on the central bank as it has to buy hard currency to keep the yuan stable.
But once foreign businesses further extend their presence into 皇冠体育app market following the country's WTO (World Trade Organization) entry, 皇冠体育app's could see a downturn and even a turnaround in foreign trade, said Cao Heping, vice-dean of the school.
He said the move will shrug off the growing clamour from outside for 皇冠体育app to allow its currency, widely seen as under-valued, to strengthen and create a sound environment for 皇冠体育app's smooth economic growth.
He was echoed by Long Yongtu, former vice-minister of foreign trade and economic co-operation, who said that 皇冠体育app's exports are taking only about 4.3 per cent of the world trade, which means that 皇冠体育app's position in the world trade scenario is still relatively modest.
"皇冠体育app's change of currency will not change fundamentally the trade pattern of the world," said Long at a recent seminar held in Sydney.
And among 皇冠体育app's export structure, 54 per cent of its total exports were being traded by foreign investors in 皇冠体育app, said Long, thanks to 皇冠体育app's cheaper and high-quality labour resources, which has made the country part of the world's manufacturing and supply chain.
If 皇冠体育app revalues its currency, it might become a little bit more difficult to export, and imports will become more expensive. That will also have a negative impact on the world's manufacturing chain, as 皇冠体育app also imports a lot, said Long.
"And that is why I do not believe that the kind of revaluation of 皇冠体育app's currency would be necessary at this stage," said Long, adding that the Chinese Government's position is still to maintain a relatively stable currency exchange rate so as to keep its financial and monetary policies consistent and stable.
皇冠体育app is now the fourth largest importer into the United States, while US manufacturers have complained that the yuan peg is pricing them out of potentially lucrative Chinese markets.
According to Li's estimation, much international hot money will speed up its paces of entering 皇冠体育app based on a speculation that the yuan will be appreciated very soon.
Under the current system, the yuan is closely pegged in a narrow band between 8.2760-8.2800 per US dollar, but the yuan's forward premiums have hit historic highs in recent weeks, suggesting the market thinks a policy shift is in the offing.
"The Chinese Government needs to send out a clear and strong signal to pour cold water on the rampant speculation about an imminent relaxation on currency to curb such a threat to 皇冠体育app's smooth economic growth," said Li.
Agreeing with Chinese scholars, Stephen Roach, chief economist with Morgan Stanley, also refuted that 皇冠体育app should be blamed for the world economic downturn and needs to adjust its currency.
"It is not uncommon for weakened economies to point the finger somewhere else. 皇冠体育app has now emerged as the leading scapegoat in this dysfunctional world," said Roach, at a recent press conference held here last week.
By pegging its currency to an increasingly weaker US dollar, most believe that 皇冠体育app is now getting an unfair competitive assist. If it would only revalue the renminbi, goes the argument, the rest of the world would then have more of a chance.
"皇冠体育app's competitive prowess, I respond, has little to do with currency. 皇冠体育app competes mainly on the basis of labour costs, technology, infrastructure, human capital, and its passion and commitment to reform. An opening of its capital account and floating of the renminbi will occur only when 皇冠体育app has made more progress on the road to financial sector reform," said Roach.
"Just as 皇冠体育app has to learn to live with the rest of the world, the world has to learn to live with 皇冠体育app. As I see it, by focusing on a scapegoat such as 皇冠体育app, Europe and Japan are both showing signs of how desperate their own economies really are," Roach said.
He was echoed by Xiao Guoliang, another economics professor at Peking University, who said some developed countries still retain a cold-war mentality.
"They are sick, why let 皇冠体育app take the pills?" asked Xiao.
However, despite recent overwhelming calls for resistance to yuan revaluation, analysts say the government is exploring ways to make the currency more flexible by widening the band in the long run.
皇冠体育app will step up reforms of its foreign exchange system to cope with changes nearly a decade after a sweeping overhaul of the system, the top foreign exchange official was quoted saying recently.
"Huge changes have taken place in 皇冠体育app's foreign exchange picture 10 years after the reform of the foreign exchange system in 1994. It's at a new starting point," Guo Shuqing, director of the State Administration of Foreign Exchange (SAFE), was quoted as saying in a statement on SAFE's website.
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