A senior Chinese banker on Thursday said shock therapy to revalue the Chinese currency and redress a huge trade gap with the United States was not appropriate, but China should gradually float its currency instead.
Zhu Min, general manager and advisor to the president for the Bank of China, said the renminbi could, as a first step, trade in a band of 0.3 to 2.5 percent against the US dollar. It is now pegged near 8.28 to the dollar.
"The end-goal is to make the renminbi flexible and floatable. The goal is not a one-off shock adjustment. The solution is to build a system," he said, speaking at the annual World Economic Forum in the Swiss ski resort of Davos.
He declined to give a time-frame for which China should move toward a more flexible foreign exchange-rate regime, which the Group of Seven finance ministers called for in September.
The Bank of China is China's biggest foreign exchange bank and one of the "big four" state-owned commercial banks undergoing restructuring in preparation for an eventual stock listing.
A bipartisan group of US senators has asked Vice President Dick Cheney to use his trip to Davos to press China to float its currency.
Some foreign investment banks have said China is likely to revalue its currency by introducing a wider trading band, now between 8.2760 and 8.2800 to the dollar, later this year.
China has resisted growing international calls, most notably from the United States, to revalue its currency, but pledges gradual reforms to make the exchange rate more flexible.
Zhu said long-term economic shifts within China would go some way toward addressing the yawning trade gap that has spurred US officials to pressure China to strengthen its currency and help US manufacturers compete.
But the United States is benefiting from China using its trade surplus with the United States to buy US Treasuries as a reserve currency, along with other Asian nations. In the long run, Zhu said, this was not sustainable.
"All the Asian countries hold dollars for security reasons, but at some point this has to end," said the US educated economist. "There is a love affair. But everybody knows that this love affair has to end."
Over time, he said, China's pace of export growth would wane, weakening its ability to buy dollar-denominated assets.
"China will focus more and more on domestic demand, which is growing fast. Then it won't be able to finance the US deficit," he said. "We cannot keep exporting our goods at a growth rate of 30 percent. That's too much."
China plans to meet with G7 deputy finance ministers to discuss its steps toward integrating the global economy, raising speculation in currency markets that it may soon move to revalue its currency.
(Xinhua News Agency January 24, 2004)
