The calls for China to strengthen the official currency of
Renminbi are "groundless", Zhang Shengman, managing director of the
World Bank, said in a speech at an international financial forum
held in Shanghai.
Although China's trade surplus to the United States reached
about US$100 billion, China's total trade surplus was about US$30
billion, only one-fifth of the total of developing countries, said
Zhang.
The rapid increase of China's exports is the result of global
manufacturing relocation, which means that some increased
production in China is not newly-added production but was moved
from Malaysia or Thailand, said Zhang.?
"In addition, the exports of China only account for 5 percent of
the global total, so it is unbelievable that China's increasing
exports caused global deflation," he said.
However, Zhang suggested that some kind of mechanism for
changing the exchange rate of the Renminbi be developed in the
future, depending on China's economic circumstances, such as
widening the fluctuating range of the Renminbi.
Meanwhile, a leading Chinese banking expert says China should
maintain a stable exchange rate policy, warning that drastic
amendments of the reform process would adversely affect the
national economy.
Tang Xu, director of the Graduate School of the People's Bank of
China, said that China's exchange rate system was appropriate to
the country's financial situation. The stable currency policy
enabled China to successfully stabilize the Renminbi and withstand
the impact of the Asian financial crisis in 1997.
To a profound extent, the stability of the exchange rate
safeguarded the country's daily financial operations, stressed
Tang.
After 1994, fundamental changes were seen in China's foreign
exchange system, as the government merged the "official" and market
exchange rates into a unified one based mainly on market demand and
supply, under a single, managed floating exchange rate system, Tang
said.
The gradual and evolutionary reform of China's exchange rate
system also helped establish foreign investors' faith in the value
of the RMB and consolidate their determination to boost investment
in China, he said.
If China freed the exchange rate, the speculative "hot money"
would advance into the country's foreign exchange market and the
RMB would surely fluctuate severely, Tang said.
"It would be a disaster, since China's financial capability to
withstand the exchange rate upheaval is so weak," Tang said,
warning that the regular financial operations would be in
disorder.
China, unlike developed countries whose financial sectors are
able to prevent and dissipate exchange rate risks, would bear too
much risk to let the RMB float freely, Tang said.
He suggested that China continue to focus on the establishment
of risk management mechanisms within the banking system and improve
corporate governance.
However, Tang also agreed that a stable exchange rate did not
necessarily mean a fixed one. He predicted that RMB could
eventually be convertible under the capital account.
"There is no timetable for realizing the RMB's convertibility
under the capital account, but at the right time, there will be
one," Tang said.
(China Daily August 10, 2003)