Foreign Exchange News
- World would pay price for yuan surge: professor
Date: 8-Jun-2007 Sources: (Shenzhen Daily)
CHINA has done its best in boosting the value of the yuan, and the whole world would pay a price if the currency were to rise dramatically, a professor said in remarks published Thursday.
The commentary, in the overseas edition of the People's Daily, coincided with the annual summit of the Group of Eight rich nations in Germany.
French President Nicolas Sarkozy plans to raise his concerns about currencies when he meets President Hu Jintao on the sidelines of the summit.
'In terms of the pace of yuan appreciation, China has tried its best,'wrote Liu Zhibiao, an economics professor at Nanjing University.
The yuan has now gained a further 6 percent since it was revalued by 2.1 percent to 8.11 per U.S. dollar July 21, 2005, and freed from a dollar peg to a float within managed bands.
China also widened the yuan's trading band May 21 to up or down 0.5 percent a day against the dollar from its morning mid-point, compared with 0.3 percent before.
A spike in the yuan would take a heavy toll on China's economy because many provinces, especially on the coast, rely heavily on foreign direct investment and processing trade, Liu wrote.
If these industries were unable to move up the value chain as quickly as the yuan rose, China's economy would risk entering a long-term recession, he said.
'China would pay the cost, and so would the whole world,'he said.
But he said China needed to speed up exchange rate reform to slow the accumulation of foreign exchange reserves, now at a record US$1.2 trillion, and to dampen expectations of yuan appreciation.
He suggested that China should allow the yuan to become fully convertible and said the government should encourage domestic firms to expand abroad by buying into overseas companies.
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