BIZCHINA / Top Biz News

Appreciation of currency 'will not cut trade surplus'
By Su Bei (China Daily)
Updated: 2006-04-21 05:48

Japan's example illustrates why meddling with foreign-exchange rates cannot reduce China's trade surplus with other countries, a National Bureau of Statistics spokesman said yesterday.

"Simply resorting to currency appreciation cannot solve the problem," Zheng Jingping said. "This has been illustrated by Japan's case."

The Japanese currency has appreciated from 380 yen per US dollar in the 1970s to the current 110 yen per US dollar.

During the same period, Japan's trade surplus with the United States has risen from about US$10 billion a year to more than US$80 billion now.

Zheng agreed that currency revaluation could help reduce the trade surplus in the short term; but in the long term, it is production costs that decide whether a country would enjoy a trade surplus.

Some critics in the United States claim that the renminbi is undervalued by up to 40 per cent, and contend that it gives Chinese exports an unfair advantage.

The reality is that China's current labour and production costs are low, which has attracted many multinational companies to the country, Zheng said.

The companies import raw materials and export finished products with added value. "This leads to high value of exports and low value of imports."

The trend could be sustained for as long as 20 years, he said.

"China is likely to enter the middle stage of an ageing society in the coming 15 to 20 years," he said, suggesting that by then, there would no longer be a plentiful supply of inexpensive labour and the trade situation could change.

China's exports rose 26.6 per cent year-on-year during the first quarter of this year while imports soared 24.8 per cent.

(China Daily 04/21/2006 page1)

(For more biz stories, please visit Industry Updates)