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Flexible yuan gives China 'rusty
lever': Expert
BEIJING -
China's final revocation of the yuan's peg to the
US dollar on Thursday, July 21, restored a
long-dormant macroeconomic control lever - namely,
currency policy - to the government.
As of
7 pm Thursday, the yuan, which had been fixed near
8.27 per dollar since 1996, was tied to an
undefined basket of currencies of China's main
trading partners. The measure raised the value of
the yuan by 2.1% to 8.11 per US dollar Thursday.
In the future, the yuan will be allowed to move in
a range of 0.3% up or down from the previous day's
close, according to China's central bank.
"This 'managed float' policy will defend
the government's control of the China market and
at the same time expand the floating range of the
currency," said Ba Shusong, deputy
director-general of the Finance Institute of the
Development Research Center of the State Council.
"Moreover, the yuan's peg to a basket of
currencies will prevent China's exports from being
seriously impacted in the short term," he added.
Calling the country's exchange rates
system "a rusty lever shelved for a long time", Ba
said it would take some time for China to make
effective use of the tool. "An immediate, drastic
adjustment in the value of the yuan would be
improper at this time," he added.
Ha
Jiming, chief economist of the China International
Capital Corp, said that the chances of the yuan's
continual appreciation were "poor" since the first
revaluation step was made amidst consensus and
mutual understanding between China and the US. "A
precondition for China to push forward reform on
its exchange rate system is the steady growth of
the economy," Ha acknowledged.
Under the
previous rigid exchange rate system, Ba Shusong
claimed, China's central bank had to control the
money supply and capital flow under the constraint
of a fixed exchange rate. The central bank's
independence in establishing monetary policies was
thus jeopardized. "The new system will allow the
central bank to act more actively and be less
impacted by non-market forces," he said.
Since the current appreciation of yuan is
quite modest, both experts agreed that China's
prudent monetary policies established earlier this
year would remain unchanged. "We won't expect the
reform to leave much impact on China's
macroeconomy," said Li Yang, a senior economist
with the Chinese Academy of Social Sciences in
Beijing, calling deflation concerns "unnecessary".
"If companies and manufacturers [did not
respond appropriately to] the appreciated yuan,
deflation might occur. Judging from past
experience, however, our companies are smart
enough to adjust their [pricing] strategies and
sharpen their competitive edges," said Ba Shusong.
Although some small companies with modest profits
may go broke, large companies will have a chance
to purchase foreign inputs at lower costs and thus
improve their productivity.
Fan Jianping,
director of the Economic Prediction Department
ofthe State Information Center, said the
appreciation of the yuan would also impel domestic
companies to seek more technical innovation rather
than simply rely on low prices when it comes to
the competition in foreign trade. Experts also
agreed that energy-consuming industries such as
iron and steel, non-ferrous metals and plastics,
rather than labor-intensive sectors, would be most
impacted. The appreciation would help China to
optimize its trade mix and restrict the exports of
products in energy-consuming industries, they
said.
(Asia
Pulse/XIC) |
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