LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - Document
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 9, 2005 Saturday
London Edition 1
SECTION: WORLD NEWS; Pg. 9
LENGTH: 611 words
HEADLINE: Internal pressure on China over currency peg eases RENMINBI REVALUATION:
BYLINE: By RICHARD MCGREGOR
DATELINE: BEIJING
BODY:
The domestic pressure on China to dump its currency peg to the US dollar and move to a more flexible exchange rate has eased substantially, local and foreign economists say, because of a slowing economy, low inflation and moderating credit growth.
But Beijing's success in reducing pressure on the currency is coinciding awkwardly with rising foreign pressure for a change in the decade-old peg.
Hu Jintao, China's president, travels to Washington in September to meet President George W. Bush, a trip that US officials had hoped would be preceded by a revaluation of the Chinese currency, the renminbi.
Without a move, they say, Mr Hu's trip threatens to be overshadowed by controversy over the issue, which many US politicians have complained gives Chinese exporters an unfair advantage.
Nicholas Lardy, of the Institute for International Economics in Washington, said there was a strong case "both internal and external", for a revaluation a year ago and "that is when (Beijing) should have moved".
"Now the internal case is fading, especially if you think growth is softening more than the headline numbers suggest, while the external case is rising - we are entering the classic conflict situation," he said.
Chinese economists who have long supported a more flexible exchange rate have also become much more cautious because of the changing domestic conditions.
Song Guoqing, of Peking University, said domestic demand in China was weak because of the government's year-long clampdown on investment and could lead "in the near future" to deflation.
"If ministries are preparing to (change the exchange rate) now, I would suggest they stop, because they are going to add to weak demand," said Professor Song.
Yu Yongding, a member of the monetary committee of the People's Bank of China, the central bank, said there was "no need" to adjust the exchange rate, according to the official media yesterday.
Both Prof Song and Mr Yu have previously supported a more flexible exchange rate.
The revival in the US dollar in recent months has also taken pressure off the renminbi, as have increases in US interest rates, which have made it less attractive for investors to park money in China in the expectation of a revaluation.
"Now the US dollar is rising and bringing the renminbi with it, so you are getting a revaluation already," said Arthur Kroeber, of China Economic Quarterly, in Beijing.
Capital inflows into China continue to be strong, with foreign exchange reserves rising to Dollars 691bn (Euros 577.4bn, Pounds 396.7bn) by the end of May, an increase of about Dollars 80bn, compared with a rise of Dollars 56bn over the same period in 2004.
But an increasingly large part of the foreign exchange build-up comes not from speculative inflows but a rising trade surplus, which is expected to triple this year on Chinese figures from Dollars 32bn in 2004.
US politicians have focused in particular on the bilateral trade imbalance, which was Dollars 162bn in 2004, on US figures, the largest ever deficit by the US with a single country.
But the pressure on the PBoC to drain the extra money from the system to keep monetary growth under control has been made easier by rising US interest rates.
The PBoC exchanges local currency for all but a small amount of the dollars entering China, and then "sterilises" the extra renminbi through the issuance of bank bills.
The difference between the low interest rates it offers and the rising US rates has ensured that this "sterilisation" remains profitable.
Wen Jiabao, China's premier, said last month China was committed to a more flexible regime but warned against "undue haste" in making a move. China at crossroads, FT Magazine
LOAD-DATE: July 8, 2005
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 9, 2005 Saturday
London Edition 1
SECTION: WORLD NEWS; Pg. 9
LENGTH: 611 words
HEADLINE: Internal pressure on China over currency peg eases RENMINBI REVALUATION:
BYLINE: By RICHARD MCGREGOR
DATELINE: BEIJING
BODY:
The domestic pressure on China to dump its currency peg to the US dollar and move to a more flexible exchange rate has eased substantially, local and foreign economists say, because of a slowing economy, low inflation and moderating credit growth.
But Beijing's success in reducing pressure on the currency is coinciding awkwardly with rising foreign pressure for a change in the decade-old peg.
Hu Jintao, China's president, travels to Washington in September to meet President George W. Bush, a trip that US officials had hoped would be preceded by a revaluation of the Chinese currency, the renminbi.
Without a move, they say, Mr Hu's trip threatens to be overshadowed by controversy over the issue, which many US politicians have complained gives Chinese exporters an unfair advantage.
Nicholas Lardy, of the Institute for International Economics in Washington, said there was a strong case "both internal and external", for a revaluation a year ago and "that is when (Beijing) should have moved".
"Now the internal case is fading, especially if you think growth is softening more than the headline numbers suggest, while the external case is rising - we are entering the classic conflict situation," he said.
Chinese economists who have long supported a more flexible exchange rate have also become much more cautious because of the changing domestic conditions.
Song Guoqing, of Peking University, said domestic demand in China was weak because of the government's year-long clampdown on investment and could lead "in the near future" to deflation.
"If ministries are preparing to (change the exchange rate) now, I would suggest they stop, because they are going to add to weak demand," said Professor Song.
Yu Yongding, a member of the monetary committee of the People's Bank of China, the central bank, said there was "no need" to adjust the exchange rate, according to the official media yesterday.
Both Prof Song and Mr Yu have previously supported a more flexible exchange rate.
The revival in the US dollar in recent months has also taken pressure off the renminbi, as have increases in US interest rates, which have made it less attractive for investors to park money in China in the expectation of a revaluation.
"Now the US dollar is rising and bringing the renminbi with it, so you are getting a revaluation already," said Arthur Kroeber, of China Economic Quarterly, in Beijing.
Capital inflows into China continue to be strong, with foreign exchange reserves rising to Dollars 691bn (Euros 577.4bn, Pounds 396.7bn) by the end of May, an increase of about Dollars 80bn, compared with a rise of Dollars 56bn over the same period in 2004.
But an increasingly large part of the foreign exchange build-up comes not from speculative inflows but a rising trade surplus, which is expected to triple this year on Chinese figures from Dollars 32bn in 2004.
US politicians have focused in particular on the bilateral trade imbalance, which was Dollars 162bn in 2004, on US figures, the largest ever deficit by the US with a single country.
But the pressure on the PBoC to drain the extra money from the system to keep monetary growth under control has been made easier by rising US interest rates.
The PBoC exchanges local currency for all but a small amount of the dollars entering China, and then "sterilises" the extra renminbi through the issuance of bank bills.
The difference between the low interest rates it offers and the rising US rates has ensured that this "sterilisation" remains profitable.
Wen Jiabao, China's premier, said last month China was committed to a more flexible regime but warned against "undue haste" in making a move. China at crossroads, FT Magazine
LOAD-DATE: July 8, 2005
posted by Eastlaw at Monday, July 11, 2005
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