RMB may keep basically stable
Although there is possible increased pressure on China to appreciate its currency faster ahead of Saturday’s G20 summit in Washington, analysts said, the renminbi strengthens and China’s domestic economic outlook worsens.”
They stressed that the economic priorities of China decide that it cannot accept Western demands to speed up renminbi appreciation, as such a move have already been beaten by the global financial crisis.
Aiming at changing the international financial regulatory system, the upcoming G20 financial summit will be attended by the world’s major developed and developing economies.
However, it may also become a place for some developed countries to put pressure on China so as to speed up the appreciation of its currency to ease their economic problems, said Zhao Xijun, a finance professor at Renmin University of China. “China will definitely face such a challenge.”
Given the fact that China’s trade surplus remains large and will not be replaced by a deficit in the short term, the renminbi has the potential to appreciate further in the long term, he said. “Because of the effect caused by the global financial crisis, capital may flow into economies with relatively sound development prospects,” Zhao said, “China is a favorable destination for capital flows, which will increase pressure on appreciation in the long term.”
However, after the value of the nation’s currency has risen by more than 20 percent against the dollar since July 2005, when the country scrapped the dollar peg and allowed it to fluctuate within a band, the Chinese economy could no longer afford faster appreciation.
With its GDP expanding 9 percent in the third quarter, nearly 3 percentage points lower than the whole of last year, the Chinese economy cooled off this year. By the end of September, the nation’s trade surplus kept large, while analysts said the expected sharp drop in foreign demand caused by the global financial crisis and economic easing would cost Chinese traders dearly, leading to a narrowing trade surplus in the coming quarters. This year is the worst for the country’s economic development in recent years, said premier Wen Jiabao, and he decided to use various measures to stop the economy from sliding further.
In Zhao’s opinion, the authorities do not want to see rapid appreciation of renminbi, instead they hope it could be basically stable.
At the moment, faster appreciation of the renminbi will only harm the economy and not bring any benefits, said Liu Dongliang, a currency analyst at China Merchants Bank. “It not only has relationship with the bankruptcy of coastal exporters, it will also cause serious unemployment and social instability,” he said, “If the economic situation get worsens, I cannot rule out the possibility of small-margin depreciation in the renminbi over some periods of time next year.”
As to claims, China should appreciate its currency faster, from some US politicians, analysts said they have made such claims simply to win votes but their stance is not in the interests of the US.
For example, US president-elect Barack Obama attacked China over the “manipulation” of its currency in a letter to the US National Council of Textile Organizations in late October. Such claims are based on political rather than economic consideration, said Zhao from Renmin University of China.
Xu Bin, an economist with Beijing-based Anbound Con-sulting, said, “°Rational US economist and politicians should know that a weaker renminbi would help the US, while a stronger one would have opposite effect.
He said, “Inflationary pressure in the US, which has risen to around 6 percent, will get reduced under the help of a weaker Chinese currency. But US politicians have to cater to the interest of traders and call for greater appreciation.”
Zhao said, “The renminbi has risen by more than 20 percent against the dollar since 2005, and has the US economy fared better?” As the fundamental cause of the US crisis is caused by a lack of confidence in its economy, so the renminbi’s appreciation would have no help.
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