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BIZCHINA / Center

Chinese economists warn of risks of continued yuan appreciation

(Xinhua)
Updated: 2007-07-25 14:15

The country would face great risks with a strong yuan in the long run if
it failed to improve the quality of its economy to support the currency
by then, Tan warned, urging the government to be alert and take
precautions against the risks.

She was worried the stronger yuan would cut or even wipe off the profits
of China's labor-intensive manufacturing sector, while the foreign
investors would snatch fat profits on the back of low-cost labor in China
and become a dominant factor in the Chinese economy.

Ha Jimin, chief economist with China International Capital Corporation,
argued accelerating yuan appreciation may help ease trade frictions,
lower the pressure from imported inflation, and urge exporting companies
to upgrade its industrial structure.

Professor Ding Zhijie with the University of International Business and
Economics warned the persistent anticipation might lead China to the trap
of attracting more liquidity for its relatively low interest rates.

He noticed that market anticipation of yuan appreciation persisted,
though the currency kept going upward and the exchange rate formation
mechanism became more market-oriented.

Ding said the Chinese government should try not to follow Japan in the
80s, which failed to correct the appreciation anticipation and fell
victim to bubble bursts in the real estate sector and the stock market.

Both Ding and Ha said the pressure of appreciation would continue due to
the country's high growth rate and accumulating forex reserves, and
predicted the value of the Chinese currency would rise to 7.3 yuan to one
US dollar at the end of the year if the dollar maintained its performance.

Ha said it would at least take three years to ease the pressure for
further appreciation of the yuan.

The Chinese government should do more research to identify the real value
of yuan and the equilibrium price of the yuan in order to avoid risks
from the yuan appreciation in a single direction, Tan said.

Fan Gang, a member of the central bank's Monetary Policy Committee,
however, was against deliberately bringing down the anticipation of the
yuan appreciation, and said the yuan's revaluation should keep to the
mechanism of market supply and demand.

(For more biz stories, please visit Industry Updates)

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