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Economists call for yuan stability
Two prominent Chinese economists have called for caution in revaluing the yuan, saying authorities must keep an eye on other currencies as well as China's export sector before making any changes. The cautionary tone followed remarks by central bank governor Zhou Xiaochuan last week pledging to "actively and safely" push ahead with currency reform this year. China has come under pressure to let the yuan, now pegged at about 8.28 to the dollar, float more freely. The United States and others argue the currency level is too low and gives Chinese exports an unfair price advantage. Beijing has said that while a freely trading currency is an ultimate goal, it will introduce changes only gradually. Economist Cheng Siwei, who has previously argued for exchange rate stability, on Monday was quoted in a top financial daily as warning of trouble if changes are introduced too quickly. "Conditions for an appreciation will hinge firstly on the relative strength of the dollar, euro and yen, and secondly, on the ability of forex management departments to handle it," the China Securities Journal quoted Cheng as saying. "Only if things can be properly handled can it (the currency regime) be liberalised, otherwise problems would quickly appear," said Cheng, who is also a vice chairman of the National People's Congress, or parliament. The remarks were made on Sunday at the closing of an economic outlook forum, the newspaper said. The forum also heard a call for yuan stability from Peking University professor Lin Yifu. "The main thing now is to maintain a stable exchange rate. Later, when there are conditions, a partial liberalisation can take place on the basis of changes in the export structure," Lin said. No further details were given, but government officials have voiced concern that a yuan revaluation may hit job creation by putting a damper on the fast-growing export sector. In a sign of weakening expectations of an imminent change in the currency regime, the premium on the yuan's 1-year non-deliverable forward fell to 3,850 points, compared with 3,900 on Friday. That implied an exchange rate of about 7.89 yuan to the dollar in 12 months' time. A non-deliverable forward, or NDF, is a transaction where a forward price is agreed between a customer and a bank. It is settled in U.S. dollars. Among the commentaries published last week was one by Zhong Wei, head of the public policy research institute under the China Reform Foundation, who said it was likely that the exchange rate would become more flexible this year. "Generally speaking, reform of the renminbi exchange rate in 2005 won't simply be fixing a new value or abandoning the anchor of the U.S. dollar," Zhong said. "The floating rate of the renminbi against the dollar could see a trend of becoming more flexible," Zhong said. "A small resetting of the renminbi peg would only be a small accident." |
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