China advisers say Greece won’t derail yuan reform

* Chinese advisers say yuan reform still on track

* Focus is on China’s needs, including controlling
inflation

* Foreign criticism of yuan policy quieter in wake of
Greece

By Simon Rabinovitch and Aileen Wang

BEIJING, May 5 (BestGrowthStock) – Greece’s debt woes give China
good reason to proceed cautiously with currency reform, but,
barring a crisis that shakes Europe, should not stand in the
way of a resumption of appreciation, government advisers said
on Wednesday.

Chinese officials have steadfastly argued that global
uncertainties argue against a big rise in the yuan’s exchange
rate, a position that the Greek worries are serving to
underline.

“China has to take the global economic environment into
consideration in reforming the yuan’s exchange rate. The Greece
crisis will definitely have an impact, but, overall, it
shouldn’t be that big,” said Ding Zhijie, a professor at the
University of International Business and Economics in Beijing.

“First and foremost, the focus for yuan reform is still on
China’s own needs,” said Ding, who advises the government.

Beijing has held the yuan steady at about 6.83 to the
dollar since mid-2008, an attempt to cushion its economy from
the global financial crisis that has faced heavy foreign
criticism.

With Chinese inflation accelerating and exports recovering,
many economists have predicted that the government could
unshackle the yuan before the end of June, around the time of a
Sino-U.S. summit this month or a G20 meeting next month.

Investors have been betting on about a 3 percent yuan rise
over the next year, though expectations for appreciation have
weakened this week on fears that an international rescue
package for Greece could fall short of what is needed.
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STILL ON COURSE

But Zhang Yansheng, head of the economic research institute
under the National Development and Reform Commission, a
powerful planning agency, said the European turbulence would
not blow Beijing off course.

“China will carry out yuan reform exclusively according to
its own plan. The pace of reform will not be overly affected by
external factors such as the Greek debt crisis,” he said. “The
cost of labour, land and resources are the key factors for
China to consider when implementing yuan reform.”

Economists at China International Capital Corp, the
country’s largest investment bank, said in a note to clients
this week that the government was likely to let the yuan rise
this quarter as part of a moderate tightening of monetary
policy.

But these plans could be upset if Greek debt troubles take
a turn for the worse and contaminate other European countries,
they added.

MUTED CRITICISM

For the time being, China appears to have reaped a
political dividend from Greece’s woes.

Earlier this year, with the worst of the financial crisis
seemingly in the past, China faced a barrage of calls from
abroad to abandon its de facto currency peg. This criticism has
been more muted recently.

When European Commission President Jose Manuel Barroso
visited Beijing last week, he emphasised that China had
confidence in the euro rather than to question its yuan policy.
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It does not hurt that the yuan has strengthened steadily
since late last year in trade-weighted terms, tracking the
dollar higher against most currencies.

However, this will not make China complacent and the
government is still focused on how to reform its currency
regime, said Ding of the University of International Business
and Economics.

“Pressure for yuan appreciation will remain, but the source
of that pressure will change. As the global economic structure
changes, it will not just be developed nations, but also
developing nations that want this,” he said.

“China will have to be proactive in confronting this,
including starting up yuan appreciation again.”
Stocks

(Editing by Jan Dahinten)

China advisers say Greece won’t derail yuan reform