Warning over global risk of sharp rise in yuan
A sharp appreciation in the yuan would harm the world economy, and Beijing supported a stronger US dollar, an incoming commerce boss has said.
Chen Deming, who was recently appointed Vice-Minister of Commerce and is expected to become minister in March, said Beijing was not opposing a gradual adjustment of its currency but that it had to be done with caution.
'The Ministry of Commerce ... will not oppose yuan appreciation. What we oppose is a strengthening of the yuan that is too fast, abrupt and unreasonable,' Mr Chen said yesterday at the Third Sino-US Strategic Economic Dialogue, being held outside Beijing.
Overseas media have identified the ministry as one of the leading opponents within the cabinet of a stronger yuan, because of fears that it could hurt the mainland's export-driven growth and cut jobs.
Mr Chen said a rapid strengthening of the yuan would 'cause repercussions' around the world.
'If the yuan appreciates too fast, it would not correspond to China's economic conditions and is not something that China can afford,' he said.
The central bank yesterday set the daily trading midpoint of the yuan at 7.36 per dollar. That was the highest level since Beijing delinked the yuan's decade-old peg to the US dollar in July 2005 and allowed the currency to float in tightly managed bands.
The yuan has appreciated 12.4 per cent since then, including an initial 2.1 per cent revaluation. But many economists say the currency is still undervalued, handing Chinese exporters an unfair advantage.
Mr Chen said: 'What I am worrying about now is the weakening dollar and its potential impact on global growth. The dollar is the major currency for trade, and its continuous depreciation will push up prices of oil and gold and reduce the wealth of dollar-holding nations.
'So I want to see a strong dollar,' he said, adding that he believed Washington also wanted to see a strong dollar.
Central bank governor Zhou Xiaochuan said Beijing supported a strong dollar, but remained confident that a weakened greenback would not seriously damage its economic prospects.
Mr Zhou said the central bank referred to 20 economies - the mainland's main trading partners - when setting the yuan's exchange rate.
Mr Chen said it would be inappropriate for the pace of yuan appreciation to be determined by those who wanted to see reductions in the mainland's trade surplus with the US.
The overall trade surplus has been increasing by about US$70 billion annually in the past two years. Until November, this year's surplus totalled US$238.13 billion, already well above last year's surplus of US$177.5 billion.
Defending the surplus, Mr Chen said US consumers had benefited from cheap imports and that a lot of mainland exports originated in the neighbouring economies of Japan, South Korea and Taiwan.
Moreover, US companies were making handsome profits by importing goods from the mainland, he added.
China and the Unites States should tackle the imbalance in their trade by undertaking structural economic adjustments, Mr Chen said.
'We need to cut down our high savings and increase consumption so as to increase imports.'
Mr Chen is set to take over as commerce minister from Bo Xilai, who was promoted to the Politburo during the recent Communist Party Congress.
Mr Chen was formerly vice-chairman of the National Development and Reform Commission, the economic planning agency.
