Chinese Official Foresees Boost in Currency

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An influential economist in the Chinese government said Tuesday that exchange rate reforms initiated in July would spur China's currency to rise slowly within a range set by the government. The revaluation could boost China's domestic imports, which in turn would cut trade surpluses with countries like the United States.


China is taking steps that are designed to benefit both the domestic and global economies. A Chinese official said today the country's currency will gradually gain value. That trend will spur domestic consumption inside China itself and also help produce global trade imbalances. International economists say China's currency is severely undervalued and recent economic reforms by Beijing have had little effect. NPR's Anthony Kuhn reports.

ANTHONY KUHN reporting:

The comments came from economist Yu Yongding, an adviser to China's central bank. He was quoted in today's official Financial News newspaper. He said that following China's exchange rate reforms in July, the Chinese yen would rise slowly within a range set by the government. July's reforms took the yuan's exchange rate off its peg to the US dollar and instead pegged it to a basket of foreign currencies. Yu admitted that since the reform, the yuan had only risen 0.4 percent against the dollar. That's not much compared to the 15 to 40 percent by which foreign governments say the yuan has undervalued.

The revaluation has already put a damper on China's textile and electronic exports Yu Yongding noted, but more importantly Yu predicted that the revaluation would boost China's domestic demand and imports, which in turn would cut trade surpluses with countries like the US. The revaluation has clearly helped to cool speculation about big swings in the yuan's value. The official China Business News reported today that China's foreign currency reserves grew by $9.3 billion in November, the slowest rate in 18 months.

Judun Jun(ph) is a Beijing-based economist who runs his own think tank. He says a lot of the recent influx of foreign currency into China is hot money, betting that China's currency will rise in value.

Mr. JUDUN JUN (Economist): (Chinese spoken)

KUHN: `Some speculative investors see that the yuan is now in a relatively stable state,' he says, `so their appetite and enthusiasm for speculation has weakened a bit.'

But foreign pressure for a bigger evaluation has not eased. US politicians continue to blame America's current account deficit and loss of American jobs on an artificially undervalued Chinese currency. Judun Jun says the finger-pointing is unnecessary.

Mr. JUDUN: (Chinese spoken)

KUHN: `China's government doesn't need foreign governments to pressure it to adjust its exchange rates,' he says. `Chinese economists have been telling their government for years,' he adds, `that its mercantilist policies based on cheap exports have drained China's own resources and are unsustainable.'

Anthony Kuhn, NPR News, Beijing.

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