Yuan could move 3 to 5 percent a year

By Wang Bo, Wang Xiaotian and Ding Qingfen (China Daily)
Updated: 2010-10-30 09:07
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BEIJING - China can afford a yuan appreciation of 3 to 5 percent annually, central bank adviser Li Daokui said on Friday, but he expressed concern that the US Senate might back a trade sanction bill that would increase pressure on a faster yuan revaluation.

"Based on historical experience, yuan appreciation of 3 to 5 percent is affordable for China," Li said during a forum.

However, Li said the pace of yuan appreciation should be based on domestic factors, rather than foreign pressure. "The yuan should rise in a controllable and gradual way, so the country's export companies will not go bankrupt," he said.

The reference rate of the Chinese currency was set at 6.6908 on Friday, having already gained 2.1 percent against the greenback from its level in mid-June, when China scrapped the dollar peg and pledged to increase currency flexibility.

"China has shown positive will on the currency issues, and is moving in the right direction, and we (China and the US) need more communication about real issues that matter to bilateral ties," said Muhtar Kent, chairman of the US-China Business Council.

Kent said no one can pressure other countries regarding their monetary issues.

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"In the future the pace of appreciation could probably go beyond our expectations," Yuan Gangming, an economist with Tsinghua University, said on Friday. He said the pace should not exceed 5 percent annually.

China has been under great pressure to appreciate its currency, as some countries, led by the US, are blaming the country's "undervalued" yuan and excessive current account surplus for global trade and economic imbalances.

At the meeting of G20 finance ministers and central bankers on Oct 22 and 23, the US proposed 4 percent as the maximum ratio of a country's trade surplus or deficit to its GDP, but countries with trade surpluses, such as Germany and Japan, are not enthusiastic about the proposal.

Saudi Arabia, Germany, Russia and China all have surpluses larger than 4 percent, while Turkey and South Africa have deficits bigger than that, according to the International Monetary Fund.

"China could make substantive changes in its economic structure in three years and substantially reduce its reliance on external demand," Li said.

Li said China's ratio of trade surplus to GDP is likely to drop to below 5 percent this year, down from the pre-crisis level of 10 percent.

Li, who is a Tsinghua University professor, also said a slew of political events in the US ahead of the upcoming G20 Seoul Summit might complicate its agenda, referring to the US midterm election and the expected Senate vote on a House-approved bill against trade partners with "undervalued" currencies, to be held in November.