China is right to resist international pressure to revalue its
currency because a stable renminbi is key to both international and
domestic growth, two overseas banks concluded in recently published
reports.
There is no need for a significant appreciation of the renminbi
at the current stage as China is vital as a contributor to world
growth and as a locomotive for regional demand in Asia at the
current exchange rate, Standard Chartered Bank
said in a report released on Monday.
China has been under pressure from the United States, Japan and
South Korea to revalue the renminbi due to the country's growing
trade surplus.
Last year, China exported goods worth US$325.6 billion while its
import volume reached US$281.2 billion.
"The fact that China enjoys a trade surplus does not tell the
full story," Gerard Lyons, chief economist of Standard Chartered
Bank, wrote in his report.
Because imports and exports are both soaring, it is possible for
China to both enjoy a trade surplus and still provide a much-needed
boost to neighboring countries, he argued.
China's imports have more than doubled over the past five years,
from US$136.9 billion in 1998 to US$281.2 billion last year.
China should only revalue its currency if inflation becomes a
problem, the bank stated. While the country's money supply has
grown rapidly, its inflation rate is still relatively low.
"There are some who see this as a sign of inflation pressures
building up in China," said Lyons. "But we don't.
"Certainly, there is property price inflation in some urban
areas, but this is an issue not best solved by stronger exchange
rates."
"This year, and next, we forecast minimal inflation of less than
1 percent for an economy growing strongly," the bank's report
stated.
The report echoes conclusions reached by the Hong Kong and Shanghai Banking Corp
Ltd (HSBC) in a study it released last week.
"For developed countries the call on the renminbi to appreciate
is largely based on political motivation rather than serious
economic concern," said the HSBC in its China Monthly Report.
Chinese goods are still largely complementary and do not
directly compete with products made in developed countries, said
the report.
The People's Bank of China, the Chinese central bank, said last
month that the present exchange rate is appropriate.
Many economists expect China, as the world's fastest growing
economy, will eventually have to revalue the renminbi.
Tai Hui, an economist for Standard Chartered Bank North East
Asia, said that China may try to ease pressure on the renminbi by
allowing more capital outflows over the next six months.
"China could stop subsidies to exporters and this would ease the
trade surplus," said Hui. "In addition, Chinese exporters could
also be allowed to retain a small, but significant, proportion of
their foreign currency export earnings offshore."
(Eastday.com August 20, 2003)