China will not bow to US pressure to allow currency to rise, adviser says
BEIJING - China will not repeat Japan's mistake in the 1980s and let its exchange rate surge in response to foreign pressure, said an adviser of China's central bank on Sunday, firing back at increasing pressure from the United States over China's foreign exchange rate policy.
Li Daokui, an economist and member of the monetary policy committee of the People's Bank of China, said the exchange rate is just one of the many tools that China could deploy to adjust the structure of its economy. The country may choose other means, such as boosting domestic consumption and increasing imports, to achieve a trade balance, he said.
"China will not go down the path that Japan did and give in to foreign pressure on the yuan's exchange rate," Li said at an industry forum in Beijing.
"I think there is still a huge potential to boost China's domestic consumption," he added.
Many Chinese officials and researchers are wary of the experiences of Japan, which bowed to pressure from the US in 1985 to sign the Plaza Accord that allowed the Japanese yen to rise sharply to reduce a bulging US trade deficit.
But as money poured into Japan to chase the yen higher, loose monetary policy inflated an asset price bubble that burst in the beginning of the 1990s, ushering in two decades of economic stagnation for Japan.
Li said on Sunday that the economic circumstances in China today are very different from those in Japan in 1985.
"The biggest difference is that China has a huge domestic market," he said, noting that domestic consumption and the country's urbanization can sustain China's GDP to grow more than 9 percent annually in the next 10 years.
During the past few weeks, US lawmakers have been pressing for legislation that would require the US government to apply punitive sanctions against China and other countries with allegedly undervalued currencies.
US Treasury Secretary Timothy Geithner said last week in congressional testimony that the US will use every available tool to urge China to let its currency rise more quickly and blamed the slow pace of yuan appreciation for US' trade deficit.
However, China has largely reduced its trade surplus during the past few years, Li said.
"But what has the US done to reduce its trade deficit?" Li said. "The US should pay much more attention to its own problems."
China vowed to make the yuan's exchange rate more flexible on June 19, ending a two-year peg to the US dollar. Since then, the yuan has gained 1.5 percent.
Earlier this month, China reported that its trade surplus shrank in August from July, as imports picked up.