The Coming Appreciation of The Yuan

Dec 4, 2007

Govt think-tank pushes for wider yuan trading band
Stronger currency will make imports cheaper and help Chinese firms expand, centre argues

SHANGHAI - CHINA should widen the yuan's trading band next year since currency appreciation will do more good than harm in current circumstances, a government think-tank said in a report published yesterday.

Senior euro zone officials came away from a meeting in Beijing last week, saying they had a strong sense that China would move faster on the yuan. A Hong Kong newspaper reported last week that the Chinese Cabinet had reached a consensus on the need to let the yuan rise more swiftly.

'China should widen the daily dollar-yuan trading band to 1 per cent from the current 0.5 per cent in 2008,' the State Information Centre, a key government think-tank, said in a report in the China Securities Journal.

'Moreover, China should also gradually guide the yuan's real effective exchange rate higher against a basket of currencies,' the report said.

So far, the appreciation of the yuan has not come near the existing 0.5 per cent daily limit.
The centre said that under current conditions, a stronger yuan would be in China's interests because it could make imports cheaper and help Chinese firms expand abroad.

A strengthening yuan could also help eliminate obsolete domestic industrial capacity and force Chinese producers to move up the value chain, the think-tank said.

It also suggested that Beijing allow foreign firms to issue yuan-denominated bonds to absorb domestic liquidity.

Finance Minister Xie Xuren made a related proposal at the weekend, saying China might let foreign governments raise yuan debt.

The centre, a research body under the National Development and Reform Commission, China's top economic planning agency, forecast that China's gross domestic product growth would slow to 10.8 per cent next year from 11.4 per cent this year.

It expects consumer prices to rise 4.5 per cent next year.

REUTERS