Loss of competitiveness in the mainland and Hong Kong as a result of the regional economic crisis may only be a temporary phenomenon and it would be foolish to devalue those currencies, an International Monetary Fund official says.
Flemming Larsen, co-author or the IMF's bi-annual World Economic Outlook report, believes there is a good chance the US dollar will progressively weaken during the next few years and with it diminish some of the pain it has wrought on the region.
Mr Larsen said the mainland could do much to compensate for its loss of competitiveness by improving efficiency and productivity, particularly among its state-owned enterprises.
Mr Larsen, deputy director of the IMF's research department, believes the United States economy is overheating as a result of the substantial flow of funds out of Asia to North America.
He said this was fuelling asset inflation and warned it could result in a correction in the US equity and bond markets unless the US Federal Reserve raised interest rates.
Mr Larsen said Monday's 160 point plunge in the Dow Jones Industrial Average should be read as a sign of growing market nervousness.
