China's Renminbi (RMB) broke the 7.5 mark to reach
a new central parity rate of 7.4938 yuan to one US dollar on
Wednesday, according to the Chinese Foreign Exchange Trading
System.
The yuan, climbing 72 basis points to one dollar
from Tuesday, rose a total 3,149 basis points from 7.8087 yuan on
the last trading day of 2006.
Tan Yaling, an expert with the Bank of China, said
a weakening dollar and calls from the United States and the Europe
that China should allow the currency to appreciate more quickly
were "short-term reasons" contributing to the recent rise in
value.
"Speculation ignited by rising expectations of a
stronger yuan also led to the continuous appreciation of the
Chinese currency," she said.
The accumulative appreciation since July 21, 2005,
when China abolished yuan's peg to the dollar, has exceeded eight
percent.
However, Tan said the move to a more market-valued
yuan should be made gradually.
"Currency appreciation was not the key solution to
China's huge surplus, which should be solved through improvement of
China's economic structure over the long term," she said.
Data from the General Administration of Customs
shows the trade surplus for the first nine months reached US$185.7
billion exceeding the total trade surplus of US$177.47 billion for
2006.
Zhang Yansheng, director of the International
Economic Research Institute under the National Development and
Reform Commission, echoed Tan's opinion.
More than 55 percent of China's exports were made
by foreign-funded enterprises, which were little affected by the
appreciation as 70 to 90 percent of their materials and spare parts
were purchased abroad, he said.
"Yuan appreciation has little impact on them since
they use dollars in transaction settlements," he said.
"However, in the long term, we will see significant
impacts since Chinese enterprises are still exporting a
considerable amount," said Zhuang Jian, senior economist with Asian
Development Bank Resident Mission.
The problem was that appreciation hurt domestic
manufacturers too much, Zhuang said.
Wu Xiaoling, deputy governor of the central bank,
said on October 20 during a visit to Washington that a sudden move
to float the yuan would harm China, and ultimately the global
economy.
The current mission for the Chinese government was
not to control the currency value, but to adjust the economic
structure. "The world should be more patient," said Wu.
Tan Yaling suggested that the central government
should dispel expectations for yuan appreciation by expanding the
trading band of the currency.
The People's Bank of China on May 21 further
widened the floating band of yuan against dollar for daily spot
trading on the inter-bank market from 0.3 percent to 0.5
percent.
At a conference of the People's Bank of China on
Tuesday, the central bank said it would strengthen efforts in
financial control and improve the valuation mechanism of the RMB
exchange rate.
The yuan broke the 7.6 mark against the US dollar
on July 3.
"After all, the 7.5 mark is just a psychological
threshold and the appreciation is still mild and controllable,"
Zhuang said. "I don't expect any sudden moves."
However, China had to be aware of the influx of hot
money during the continuous appreciation process, Zhuang
warned.
The appreciation of yuan would increase asset
values and so give a further boost to the stock market, said Cheng
Weiqing, an analyst with the CITIC securities.
"It's hard to tell how much hot money has
contributed to the surge of the stock and property markets," Zhuang
said. "The influence might be minor and under well control right
now."
"However, China needs to be cautious of the trend
considering the excessive liquidity it already faces," he
argued.
On Wednesday, the yuan lost 329 basis points from
the previous trading day to reach a central parity rate of 10.6779
yuan against one euro.
Meanwhile, it climbed 28.5 points from 6.5585 on
Tuesday to 6.53 yuan against 100 Japanese yen.
(Xinhua News Agency October 24, 2007)
