Foreign Exchange News
- Steep rise of yuan 'could spark crisis'
Date: 6-Feb-2007 Sources: (Xinhua Online)
A drastic revaluation of the yuan may suit the interests of international speculators but could trigger a financial crisis in China, a senior economist has warned.
Lin Yifu, director of the China Centre for Economic Research (CCER) at Peking University, made the remarks at a forum held by the institute on Sunday and rejected the claim that the renminbi is grossly undervalued.
If the Chinese currency were seriously undervalued, the ratio of the trade surplus to the overall trade volume should be very high, which was not the case, Lin explained in an article published on the CCER website.
In 2005, the ratio was 7.2 percent. During the Asian financial crisis in 1997 and 1998, when there was strong pressure for the yuan to be depreciated, the figures were 12.4 and 13.4 percent.
From another perspective, if the yuan were seriously undervalued, the ratio of the trade surplus to the gross domestic product (GDP) should also be much higher than that in other Asian countries.
But China's ratio is much lower than in Singapore, South Korea, Malaysia, Thailand or Japan.
Lin said that international speculators hope the Japanese and US governments pressure China to revalue the yuan so that they could profit from speculative deals.
A large-margin revaluation would not reduce China's trade surplus or foreign exchange reserves, as the value of the renminbi is not the reason, Lin said. Instead, it will lead to increased imports and decreased exports, which will exacerbate China's overproduction.
It may, in turn, lead to deflation, lower corporate profits, increased bad loans and 'could even trigger a financial crisis,' he said.
He suggested that China stick to its principle that the yuan's appreciation be independent, flexible and affordable and make it clear that the pace of the revaluation would remain at about 3 percent a year.
The yuan is expected to appreciate by 5-6 percent this year.
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