Economy

Fast-rising yuan a 'risk to global economy'

By Wang Bo (China Daily)
Updated: 2010-10-09 07:30

Change will be gradual, says bank chief as currency hits highest level

BEIJING - The yuan on Friday climbed to the highest level since 1993 amid growing foreign demand for a faster currency appreciation.

However, a senior Chinese official warned that if the yuan appreciates too fast, it could harm the world's economy, as well as China's.

The yuan was traded at 6.6830 against the greenback on Friday, advancing 2.2 percent since China removed its peg to the US dollar in June and pledged to add more flexibility to the yuan.

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China is committed to moving toward a flexible exchange rate regime but "our approach will be a gradual one", said Yi Gang, vice-governor of the People's Bank of China, the country's central bank, at a forum during the annual meeting of the International Monetary Fund (IMF) and World Bank in Washington on Thursday.

"We will do our part to help correct global imbalance through a gradual appreciation of the yuan," said Yi, also head of the State Administration of Foreign Exchange.

Yi's comments echoed the tone set by Premier Wen Jiabao during his visit to Europe, where he called on European leaders to refrain from pressing for a stronger yuan and warned a sharp appreciation may cause social unrest in China and "lead to a disaster for the world".

"Calling for a rapid yuan revaluation is unreasonable, as it takes time for resources to flow from the trade sector to the non-trade sector after an appreciation," said Chen Daofu, a senior economist at the Development Research Center of the State Council.

"A fast appreciation will block the effective flow of resources, causing serious social and economic problems and even dragging down growth," he said.

Zhao Xijun, deputy head of Renmin University of China's school of finance, said it is not in any countries' interest if China's growth loses steam, as the country has been a leading force for global economic recovery and is growing into a large importer.

The IMF said in its latest World Economic Outlook report that China's expansion in recent years was the "linchpin" for global trade and boosted numerous economies. It predicted the Chinese economy will grow 10.5 percent this year, compared to its forecast of 4.8-percent global growth in 2010.

The US House of Representatives last week passed a bill that allows the country to use its own estimates of currency undervaluation to calculate countervailing duties on imports from China.

Economists pointed out, however, that yuan appreciation cannot help resolve global imbalance fundamentally and countries must conduct thorough structural change domestically to contribute to global economic recovery.

"The dollar and euro are weakening due to the ultra-loose monetary policies in US and European countries, which have prompted governments of emerging market countries to intervene in the market," Chen said.