Beijing needs to devalue its currency by 40 per cent to regain the mainland's pre-crisis competitiveness, according to an economist. However, such a dramatic devaluation would destabilise most of the economies in the region, Ken Davies, the Economist Intelligence Unit chief economist and editor, said. 'If you look at the level of currency devaluations that have taken place in other Asian countries, China would have to devalue by 40 per cent to regain competitiveness, and up to 50 per cent to gain a competitive edge,' he said. Mr Davies said such a drastic move was unlikely, and predicted a more modest 10-15 per cent devaluation in next year's first half. Until two months ago, a devaluation of the yuan would have resulted in pressure that would have broken the Hong Kong dollar peg, Mr Davies said. However, currency speculators had now retreated and the SAR's economy had become more resistant to external financial shocks, he said. Mr Davies said a yuan devaluation was inevitable as the mainland authorities were having difficulty jump-starting domestic demand, and current-account surpluses were falling. He said the regional economic crisis was now over and Beijing had kept its promise not to devalue amid fears it could trigger another slide amongst the weaker Asian economies. Mr Davies said a reforming mainland was experiencing the unusual phenomenon of falling interest rates and declining private consumption. 'That shouldn't be happening in a market economy. People are saving not spending,' he said. Mainland workers were saving because they feared reforms would result in their employers not being able to pay them a pension. Mr Davies said many consumer aspirations had been met, such as the acquisition of VCD players and colour televisions. 'Buying a house or a car is a big jump and it will be a while before those aspirations are here,' the economist said.