The EU welcomes China's decision to revaluate its currency yuan, viewing it as a step showing "China assuming greater international responsibility," EU officials said in Brussels Friday. 

"This is a welcome move," said Peter Mandelson, EU commissioner for trade, in a statement read by his spokesperson Claude Veron-Reville at a press conference of the EU Commission.

 

On Thursday, China raised the value of its currency yuan by 2.1 percent, untying the peg to the US dollar. 

 

Mandelson, who recently wrapped up a deal with China over textile trade, also said he did not expect "early or significant impact" on the international trade as a result of the yuan's appreciation.

 

China's decision to lift its currency rate is of vital interest for European countries as the EU is China's No.1 trading partner and China, the second largest of the 25-member bloc just after the US.

 

"The EU Commission welcomes yesterday's decision," said Pia Hansen, who presided over the press conference, noting that this revaluation was moving "in right direction."

 

"We believe the shift to a basket of currencies of China's major trade partners provides increased exchange rate flexibility over the medium run," she said.

 

"The EU Commission believes that the decision is very much in China's interest in that it would help China's growth in a balanced and stable manner. It should also contribute to better functioning of global economy and to global financial stability," she added.

 

Senior Japanese government officials and business leaders yesterday also praised China's revaluation decision.

 

Finance Minister Sadakazu Tanigaki told reporters that Japan welcomed the revaluation, saying the move "not only contributes to the stable development of China's economy, but also has merit in terms of boosting Japan's economy."

 

"Looking from the perspective of Asia's currency system, I would say it was a historic step," he said.

 

"It was a big decision ... and it was a major change," Tanigaki said. "We must closely monitor how the dollar-pegged system will transform into the currency basket system."

 

Heizo Takenaka, minister for economic and fiscal policy, said the severance of the yuan's decade-old pegging to the US dollar "will be described in history as a very big step" toward ensuring China's greater contribution to the world economy.

 

"People talk about 2 percent. But the essence of this reform is that (China) has shifted to a basket-style managed floating system," he said.

 

Hiroshi Okuda, chairman of Nippon Keidanren -- a major economic organization, said the Chinese government's decision marked a further step for China's economy toward the international stage, and should be appreciated.

 

At 5 PM yesterday, the US dollar was quoted at 110.83-85 yen in Tokyo, dropping from 112.36-39 on Thursday.

 

In the Tokyo stock market, the 225-issue Nikkei Stock Average fell 91.68 points, or 0.78 percent, to 11,695.05, the lowest close since July 13, when it ended at 11,659.84.

 

The broader Tokyo Stock Price Index of all First Section issues on the Tokyo Stock Exchange slid 8.00 points, or 0.67 percent, to 1,186.76, also the lowest finish since July 13, when it ended at 1,185.70.

 

The decline mainly derived from the selling of automakers and other export-driven shares after the revaluation drove the yen sharply higher against the US dollar, prompting fears that Japanese exporters' earnings may be trimmed in the coming months.

 

However, analysts and economists said the yuan's revaluation was more moderate than previously expected. Therefore, it will have limited effect on Japan's economy.

 

Chief Cabinet Secretary Hiroyuki Hosoda also said the Japanese government sees no major impact on the country's economy just because of the yuan's appreciation.

 

Likely, Toyota Motor Corp Vice Chairman Fujio Cho denied there will be any serious effect, while saying it is worth paying further attention to the yuan's move.

 

India said yesterday China's revaluation would benefit its exports as it would make the prices of Chinese goods more realistic and provide level playing field for Indian exporters on global markets.

 

According to Commerce Minister Kamal Nath, the real impact would be known after seeing the implementation and knowing with which currency basket China will peg the yuan in the next few weeks.

 

When asked whether the reserve bank of India should intervene to manage the impact of the revaluation, he said India rupee takes its own course and it's for the Finance Ministry to handle it.

 

One of the leading IT companies in India, Wipro, said yesterday the revaluation was unlikely to impact the company's operations in China or overseas.

 

Wipro's Chairman Azim H. Premji said in Bangalore that "we are not expecting any change on our margins or operations from the revaluation of yuan, which is up by 2 percent against the US dollar though the US wanted China to devalue its currency by 10 percent."

 

After announcing the first quarterly results of the current fiscal (2005-06), Premji said that as India's third largest IT company after Tata Consultancy Services (TCS) and Infosys, Wipro has set up its operations in China with two development centers in Shanghai and Beijing, the Indo-Asian News Service reported.

 

"Though it is difficult to say what the fallout will be in the long term, the revaluation of yuan, coming as it does after over a decade, is a good sign, as China has pegged the yuan against a basket of currencies this time instead being tied down to the US dollar," Premji noted.

 

(Xinhua News Agency July 23, 2005)