Chinese economist Justin Lin Yifu
speaks to journalists upon arriving at the Great Hall of the People to
attend the opening of the Chinese People's Political Consultative
Conference in Beijing on Saturday, March 3, 2007. [CRIENGLISH.com]
China should combat speculation over the renminbi's appreciation by
controlling the pace of the currency's rise in value, said Justin Lin Yifu, a
If the currency is allowed to appreciate, the exchange rate's annual change
should be less than 3 percent, Lin, a member of the Chinese People's Political
Consultative Conference (CPPCC) National Committee, told China Daily in an
"We should stick to the approach of ensuring adjustments (to the yuan's
exchange rate) are small in scale and bearable," said Lin, a professor at Peking
annual lending rate in the international market is about 5 percent, while the
renminbi's annual interest rate for savings is 2 percent, so a 3 percent or
bigger increase in the yuan's value would make speculative activities aimed at
appreciation profitable, Lin said.
In July 2005, China abandoned the renminbi's decade-old peg to the US dollar
and allowed its currency to appreciate by 2.1 percent. Since then, the yuan has
gained almost another 5 percent against the dollar.
However, the United States blames its colossal trade deficit on what it
claims is a seriously undervalued renmibi and has been pressing China to allow
for a bigger revaluation.
Noises from the US, together with China's swelling trade surplus, have
encouraged speculators to bet that the renminbi will appreciate at a quicker
Lin said a major cause of the 70 percent annual increase in China's trade
surplus last year was cheating traders who falsified the prices of the goods
they traded, aiming to cash in on speculative profits from a rising renminbi.
This, in turn, further intensified speculative pressure on the Chinese
Other economists have said anticipation that the yuan would appreciate
rapidly had triggered other problems, such as foreign buyers snapping up
property in big cities.
"The imperative now is to dispel the speculative anticipation for the
renminbi's appreciation," Lin said.
Lin said he believed the renminbi's exchange rate was at a reasonable level.
The country's huge trade surplus is not sufficient reason to allow the
renminbi to appreciate further.
In the aftermath of the 1997-98 Asian financial crisis, when the renminbi was
believed to have been overvalued, China's trade surplus was 12 percent of its
total trade volume. But last year the surplus was 10 percent of total trade
In addition, China's surplus-to-gross domestic product ratio is lower than
almost all other Asian countries, including Japan, South Korea and Malaysia, Lin
Lin said the renminbi's exchange rate had become a political issue because of
the pressure from the US.
"A political problem should be tackled in a political way," he added.
Lin said people in the US who had been advocating for their government to
exert more pressure for the yuan's appreciation actually did not understand the
"We cannot ignore them. But we should not pay too much attention to them
either," he said.
(China Daily 03/05/2007 page3)