China should not bow to pressure from home and abroad to revalue
its currency in a move to prop up a sustainable economic growth and
prevent speculative hot money from international markets batting
the market, warned a group of senior experts and officials.
Instead, the central government should take
more measures giving greater flexibility to the yuan's
convertibility on the current account in a move to balance its
biased international trade and ease the mounting calls for a quick
revaluation of the currently strong local currency, said Li
Qingyuan, a renowned economics professor with the School of
Economics under Peking
University.
Speaking at a recent seminar held at the university, Li, also a
member of the 10th
National People's Congress, said that decentralizing the
control under the current account includes measures to deregulate
the rigidly controlled foreign exchange system, allowing more
citizens to buy exchanges for traveling and the establishment of a
national foreign exchange market that could eventually allow both
financial enterprises and individuals to trade foreign exchanges in
the market.
"Given that China's foreign exchange system is still under rigid
controls, the move will make China's increasing reserves more
balanced," said Li.
More than that, it could further power China's economic growth
if Chinese enterprises are given further room to obtain foreign
exchanges more freely.
China's foreign exchange reserves were a record US$346.5 billion
by the first half of the year -- the world's second largest
stockpile after Japan's.
China's years of hefty balance of payments surpluses have put
pressure on the central bank as it has to buy hard currency to keep
the yuan stable.
But once foreign businesses further extend their presence into
China market following the country's WTO (World Trade Organization)
entry, China could see a downturn and even a turnaround in foreign
trade, said Cao Heping, vice-dean of the school.
He said the move will shrug off the growing clamor from outside
for China to allow its currency, widely seen as under-valued, to
strengthen and create a sound environment for China's smooth
economic growth.
He was echoed by Long Yongtu, former vice-minister of foreign
trade and economic cooperation, who said that China's exports are
taking only about 4.3 percent of the world trade, which means that
China's position in the world trade scenario is still relatively
modest.
"China's change of currency will not change fundamentally the
trade pattern of the world," said Long at a recent seminar held in
Sydney.
And among China's export structure, 54 percent of its total
exports were being traded by foreign investors in China, said Long,
thanks to China's cheaper and high-quality labor resources, which
has made the country part of the world's manufacturing and supply
chain.
If China revalues its currency, it might become a little bit
more difficult to export, and imports will become more expensive.
That will also have a negative impact on the world's manufacturing
chain, as China also imports a lot, said Long.
"And that is why I do not believe that the kind of revaluation
of China's currency would be necessary at this stage," said Long,
adding that the Chinese Government's position is still to maintain
a relatively stable currency exchange rate so as to keep its
financial and monetary policies consistent and stable.
China is now the fourth largest importer into the United States,
while US manufacturers have complained that the yuan peg is pricing
them out of potentially lucrative Chinese markets.
According to Li's estimation, much international hot money will
speed up its paces of entering China based on a speculation that
the yuan will be appreciated very soon.
Under the current system, the yuan is closely pegged in a narrow
band between 8.2760-8.2800 per US dollar, but the yuan's forward
premiums have hit historic highs in recent weeks, suggesting the
market thinks a policy shift is in the offing.
"The Chinese government needs to send out a clear and strong
signal to pour cold water on the rampant speculation about an
imminent relaxation on currency to curb such a threat to China's
smooth economic growth," said Li.
Agreeing with Chinese scholars, Stephen Roach, chief economist
with Morgan Stanley, also refuted that China should be blamed for
the world economic downturn and needs to adjust its currency.
"It is not uncommon for weakened economies to point the finger
somewhere else. China has now emerged as the leading scapegoat in
this dysfunctional world," said Roach, at a recent press conference
held here last week.
By pegging its currency to an increasingly weaker US dollar,
most believe that China is now getting an unfair competitive
assist. If it would only revalue the renminbi, goes the argument,
the rest of the world would then have more of a chance.
"China's competitive prowess, I respond, has little to do with
currency. China competes mainly on the basis of labor costs,
technology, infrastructure, human capital, and its passion and
commitment to reform. An opening of its capital account and
floating of the renminbi will occur only when China has made more
progress on the road to financial sector reform," said Roach.
"Just as China has to learn to live with the rest of the world,
the world has to learn to live with China. As I see it, by focusing
on a scapegoat such as China, Europe and Japan are both showing
signs of how desperate their own economies really are," Roach
said.
He was echoed by Xiao Guoliang, another economics professor at
Peking University, who said some developed countries still retain a
cold-war mentality.
"They are sick, why let China take the pills?" asked Xiao.
However, despite recent overwhelming calls for resistance to
yuan revaluation, analysts say the government is exploring ways to
make the currency more flexible by widening the band in the long
run.
China will step up reforms of its foreign exchange system to
cope with changes nearly a decade after a sweeping overhaul of the
system, the top foreign exchange official was quoted saying
recently.
"Huge changes have taken place in China's foreign exchange
picture 10 years after the reform of the foreign exchange system in
1994. It's at a new starting point," Guo Shuqing, director of the
State Administration of Foreign Exchange (SAFE), was quoted as
saying in a statement on SAFE's website.
（China Daily July 21, 2003）