Chinese experts have warned that gambling on the exchange rate
of the Chinese currency, renminbi (RMB), based on expectations of
the currency's appreciation may result in heavy losses, since the
RMB will not change by a big margin due to many factors.
There has been growing voice for the RMB's appreciation in the
Western world where some people see China's balance of payments
surplus on both current and capital accounts, and the country's
rapid increase in foreign exchange reserve. Some are even engaged
in speculation in the exchange rate of the Chinese currency, simply
prompted by expectations of its appreciation.
However, the people should analyze the issue of the RMB's
exchange rate against major hard currencies in an all-round and
objective way, said Prof. Wei Jianing, vice director of
Macroeconomic Department of the State Council's Development
Research Center.
The current market situation where there is an oversupply of
foreign exchange does not reflect the real relationship between
supply and demand in China, as the government still have certain
control over foreign exchange, which limits the exchange revenue
and expense of companies and individuals, according to Wei.
Internationally, if the world economy recovered as expected, the
interest level on the international market would go up and the
exchange rate of the US dollar would stop dropping or even rebound.
This could lead to changes in the flow of foreign exchange and the
expectations of the RMB's exchange rate.
The solution of some deep-rooted problems in the process of
China's reform, such as inefficient use of economic resources, lack
of effective demand, employment pressure and non-performing bank
loans, would also have a big impact on the exchange rate of the
Chinese currency, Wei said.
The exchange rate of the Chinese currency has basically kept
stable with rises by a small margin since 1994. It is widely
accepted that China made great contribution to the economic and
financial stabilization in Asia and the world at large as the
government maintained the stable exchange rate during the Asian
financial crisis when many countries and regions devalued their
currencies against the US dollar by large margins.
Prof. He Liping, of the School of Economics under Beijing Normal
University, said the change of exchange rate will bring about
both positive and negative impacts on an economy.
As China's foreign trade, debt and creditor's rights are
calculated in the US dollar and other hard currencies, the change
in the RMB's exchange rate will bring more risks and a mixed impact
to all countries concerned.
It is not an easy job to tell whether the outcome of exchange
rate fluctuations is good or bad to a country, especially when
there lacks an uniform standard for the reasonable level of
exchange rates in the world, he said.
Yu Yongding, director of the Institute of World Economics and
Political Studies under the Chinese Academy of Social Sciences,
said continuous trade surplus or deficit in large amounts would
affect the health development of the Chinese economy and is
unfavorable to China's fundamental interests.
However, he said, China needs support and coordination from the
international community in its effort for a balance of payments
equilibrium. He called on countries concerned to create good
conditions for China to expand import and export and overseas
investment, eradicating irrational limitations imposed on
China.
The experts agree that the flexibility of the RMB's exchange
rate will be enhanced. Even though the currency will fluctuate by
bigger margins in the future, it will go in a two-way manner. Any
attempt to lay down the stake on expectations of the RMB's
appreciation may produce heavy losses, instead of profits.
(Xinhua News Agency August 31, 2003)