Saturday, 27 February 2010

China to hold yuan stable to help exports

Official says US must not blame Beijing’s currency policy for its economic ills

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Guanyu 道 said...

China to hold yuan stable to help exports

Official says US must not blame Beijing’s currency policy for its economic ills

26 February 2010

(BEIJING) China yesterday reaffirmed its determination to hold down the yuan’s exchange rate to help its beleaguered exporters.

Beijing is under pressure, especially from the United States and the European Union, to let the currency rise to relieve their own exporters and so reduce their big trade deficits with China.

But commerce ministry spokesman Yao Jian said it was wrong for Washington to pin the blame for US problems on other countries, especially China’s currency policy.

‘The yuan’s exchange rate is not the main reason triggering China’s trade surplus, America’s trade deficit or global economic imbalances,’ Mr. Yao said.

He said there had not been a clear rebound in external demand despite two consecutive months of year-on-year gains in exports, including a 21 per cent rise in January. Overseas shipments would not regain full momentum for another two or three years.

‘Many exporters are still struggling for survival, so I think a stable exchange rate for the yuan will remain a prime target of China’s current economic policies,’ Mr. Yao said.

Exports fell 16 per cent in 2009, sapped by the global credit crunch, and Mr. Yao said any sharp year-on-year growth in the first half of 2010 would simply reflect the low comparison base of last year. ‘So we should not read too much into it,’ he said.

With exports likely to fluctuate at a relatively low level this year, monthly trade deficits were not out of the question.

‘China’s trade surplus is going to narrow further this year and we cannot rule out a possible trade deficit in some months,’ he said. China’s trade surplus fell 34 per cent last year to US$196.1 billion.

Mr. Yao’s comments chimed with those on Wednesday of Zhao Qizheng, a spokesman for the Chinese People’s Political Consultative Conference, who said China would be prudent in managing the yuan and steer clear of abrupt policy shifts.

‘We can’t just protect others’ interests. We also have to protect our interests,’ Mr. Zhao said. He was speaking ahead of next week’s annual meeting of the political advisory body, which will run in parallel with the annual session of China’s parliament, the National People’s Congress.

Reflecting the official caution, offshore yuan forwards are currently pricing in just 2.5 per cent appreciation against the US dollar over the next year, while a Reuters poll conducted last month forecast a 3 per cent rise by the end of this year.

But some market economists have started to speculate on a sizeable one-off revaluation before long, arguing that China needs to slow its turbo-charged economy, dampen inflation and redirect growth away from exports and towards home-grown demand.