BEIJING -
China's currency has strengthened to its highest
level against the US dollar since its July 21
revaluation, due to market forces, a weakened
dollar and technical rebounds. The China Foreign
Exchange Trade System announced on Friday the
daily benchmark, or the central parity rate for
the dollar, was 8.0286 yuan per dollar, falling
for the first time below 8.03 yuan.
The
Chinese currency has gained nearly 1% against the
dollar since its 2.1% revaluation last July, with
the biggest daily increase charted on March 15.
The People's Bank of China (PBC), the
country's central bank, now has a policy of
calculating the yuan's value against the US
dollar using a weighted
average of the prices given by major banks. The
highest and lowest offers are excluded from the
calculation. Giving banks a role in setting the
daily exchange rate is seen as a sign that the
central bank is willing to allow market forces a
greater role in daily trading, analysts
acknowledge.
In an interview with Xinhua,
finance analyst Tan Yaling with the Bank of China
agreed the yuan's recent rises showed the market
had become a more important influence on its
value. She echoed the claim by Prime Minister Wen
Jiabao at a press conference at the annual session
of China's top legislature earlier this week that
"[the yuan] boasts the room and capacity for
floating up or down by itself in line with current
mechanisms and market changes".
Tan said
the yuan rise reflected the market confidence in
China's robust economic prospects and long-run
investment yields, citing the country's ample
foreign exchange reserves, stable trade growth and
increased market transparency. It has also been
brought about by the dollar's weakening against
other major world currencies on
lower-than-expected economic figures provided by
the US government and a technical rebound after
unexpected declines earlier this week, she said.
The US pressure on China to revalue its
currency built up as China's trade surplus with
the US hit a high in 2005. Statistics provided by
China and the US differ significantly. China said
its total trade surplus with other countries came
to US$100 billion last year amid increasing trade
disputes.
Foreign exchange reserves surged
to $818.9 billion by the end of last year - second
only to Japan - largely as a result of skewed
trade and foreign exchange management.
US
senators Charles Schumer, Lindsey Graham and Tom
Coburn, who are leading a US Congressional effort
to pressure China to make trade and currency
concessions, will visit China this week, seeing
officials in Beijing and Shanghai, to discuss
growing concerns in the US Congress about Chinese
trade practices, currency policy and intellectual
property rights.
The visit comes as the US
Senate nears a March 31 deadline for a vote on a
bill written by Schumer and Graham that would
impose a high tariff on Chinese goods to counter
what the bill's sponsors call artificial currency
exchange rates that benefit Chinese manufacturers
at the expense of American producers. "We thought
it was the right time to figure out where the
Chinese are headed on this issue and other issues,
like intellectual property and port security,"
Schumer said.
The PBC, however, reiterated
in its annual monetary report released at the end
of February that the yuan would remain "basically
stable" at a reasonable, balanced level this year.
The "independent, controllable, progressive" way
whereby China reforms its currency system would
continue, while priority would be placed on
promoting balanced international payments, the
central bank said.
The bank emphasizes
that a floating yuan was not simply one that would
appreciate, but the prevailing view among industry
watchers was that the yuan would strengthen
gradually in 2006. Tan said she believed the US
dollar would be traded at around eight yuan this
year, and in the first six months gains would
outweigh losses for the yuan.
Gradualist policy
reaffirmed Responding to Schumer and
Graham, Wu Xiaoling, deputy governor of the PBC,
said on Saturday that China was doing its best and
that it would trust market forces to gradually let
the currency move more freely.
"There will
be no wide fluctuation of foreign exchange rates,
because it may harm the steady development of the
country's economy," Wu said. "The yuan's
flexibility is increasing gradually and we will
allow market supply and demand to play a
fundamental role in forming the exchange rate."
Previously, central bank governor Zhou
Xiaochuan had claimed that China would not bow to
pressure from the US to bring forward its
timetable for yuan flexibility, according to a
Bloomberg report on March 11.
China is also under pressure
to let the yuan trade more freely before the US
Treasury's semi-annual report on global currency
manipulation and President Hu Jintao's visit to
the US next month.
Wu
pointed out that there would be no link between
Hu's visit and the change of China's policy on the
yuan's value. "We will trust market means," she
said. "I want the public to pay more attention to
the development of Chinese enterprises rather than
the slight rise and fall of the daily exchange
rate." Wu made the comments at a financial forum
held in Beijing on Saturday.
The deputy
governor said in a speech that China was in a
continuous effort to reduce imbalances in external
payments and make adjustments to its foreign
exchange policy of relaxed inflows combined with
strict outflows. She said this was the source of
excessive increases in foreign exchange reserves.
Wu said that China would continue to
promote overseas investment as an effective way to
balance its currencies. Chinese companies spent
more than $6 billion abroad in 2005 as the
government encouraged firms to "go forth" in
search of natural resources and markets.
"China will also introduce more advanced
financial products, including forward interest
rate agreements and currency derivatives to hedge
the risks that it may encounter in a freer
interest and exchange rate market," Wu said.
Another major job in the central bank's
2006 schedule, according to Wu, was to continue
strengthening its efforts to reduce the yuan's
excessive liquidity in the banking system, caused
by abundant foreign currency reserves. Under the
system introduced last July, the yuan is allowed
to rise or fall 0.3% against the dollar on either
side of a daily rate announced by the central
bank.
