'China pushes exchange rate reform in own way'

Updated: 2011-10-18 22:46


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HONG KONG - China is conducting the exchange rate reform in its own way, and continually driving up migrant workers' salary will push the real exchange rate of its currency yuan, a Hong Kong- based economist said here on Tuesday.

Addressing at a conference titled "The US- Asia Dynamic in the 21st Century: Challenges Ahead", the Credit Suisse's chief regional economist Tao Dong said there is a clear policy intention for China to speed up the real exchange rate appreciation, while China has already made a "dramatic change" on that.

Tao said what China has been doing over the past two years is very much trying to drive up migrant workers' salaries, which went up 40 percent year-on-year in 2010. The salary increase leads to the rising production costs and prices, and in a way promotes the renminbi appreciation, he said.

Although the current trade surplus and the competitiveness will be reduced should China allows the currency to appreciate, migrant workers get the real benefits, Tao said, citing those people are the main power to boost the country's domestic consumption.

Tao said, from Beijing's perspective, China needs to make a transition to be domestic consumption driven from export driven, and the salary increase is a very big part of that.

"It marks the real exchange rate appreciation followed by a consumption boom will serve much better to the rest of the world in terms of global rebalancing and the nominal exchange rate."

Tao expects migrant workers' salary in China to increase 20 to 30 percent annually in the next five years, adding it is a " dramatic change" in the real exchange rate, and "the corner stone of China's economic transformation."

Commenting on the recent heated-discussed topic that the US senate pasted a new bill to add pressure on China's currency policy making, Tao expects a rising sentiment of China bashing, which will create more problems in the Sino- US relationship, but the chance that the bill will be signed by the White House is slim.

"This is largely a political gesture," he said, "It's going to create some turbulence to the Sino- US relationship, but at this stage, I do not expect this to be a major economic issue."

Strobe Talbott, president of the Brookings Institution and who also attended the conference said, the effort trying to punish China's currency policy "will not go through the congress with approval, because the House of Representatives will turn it down."

Barry Bosworth, a senior fellow at the Brookings Institution said he does not think China's currency issue is really that important in the Sino-US relationship, although it has certainly dominated the discussion among the American public and the US congress.

He said the imbalance of trade between the United States and China, and the United States with Asia is the real problem. "The United States can no longer afford as an economy to have this enormous trade deficit with the rest of the world, and I think that is central to the dispute between the United States and Asia. "