Strong yuan would hurt China -gov’t economists

BEIJING, Sept 7 (BestGrowthStock) – China must resist external
pressure for yuan appreciation because a stronger exchange rate
would take a big bite out of economic growth, according to a pair
of senior government researchers.

Li Jianwei and Yu Bin, economists in a think tank under the
State Council, or cabinet, said that a substantial rise in the
yuan could cut growth next year to 8.4 percent from their
baseline forecast of 10.2 percent.

They did not spell out what they meant by “substantial”.

Writing in the latest issue of the Chinese-language Reform
magazine, Li and Yu also said that Beijing should enhance the
yuan’s flexibility if the euro depreciates — in effect,
suggesting that the yuan should be allowed to fall against the
dollar in those circumstances.

While their comments do not necessarily reflect official
thinking, they do underscore how many high-level economists in
the government think that a strong currency could deal a serious
blow to China when the global economy is still on shaky ground.

“If imports by the United States, Europe and Japan slow
sharply and the renminbi appreciates strongly at the same time,
the concentration of these negative factors will lead to a steep
correction for our economy,” Li and Yu wrote.

China lifted the yuan, also known as the renminbi, from a
nearly two-year de facto peg to the dollar on June 19 and vowed
to steer its currency regime toward greater flexibility.

But nearly three months on, the promises appear to have
amounted to little. The yuan has gained just 0.6 percent against
the dollar since the depegging, even if the pace of appreciation
has increased a touch in recent days. [CNY/]

“If there is large-scale euro depreciation against the
dollar, we should progressively increase the flexibility of the
renminbi’s exchange rate and maintain the the renminbi’s nominal
effective exchange rate at a reasonable, balanced level,” Li and
Yu wrote.

“We must resist large-scale yuan appreciation brought about
by external pressure and prevent a big drop in export growth,”
they added.

Hu Xiaolian, a Chinese central bank vice governor, has said
that more focus should be placed on the yuan’s nominal effective
exchange rate — its value against a basket of currencies, not
just the dollar.

On that basis, the yuan has weakened over the past three
months, because it has been closely tied to a broadly weakening

China’s reluctance to allow more yuan appreciation could set
the stage for a political collision with the United States, where
many lawmakers complain that Beijing keeps its currency
undervalued to give its exporters an unfair advantage.

Larry Summers, who is President Barack Obama’s top economic
adviser, is in Beijing for talks with Chinese officials.

Vice Premier Wang Qishan told him that China wants to narrow
differences with the United States on a range of issues, state
media reported on Tuesday. [ID:nTOE68600B]
(Reporting by Simon Rabinovitch; Editing by Ken Wills)

Strong yuan would hurt China -gov’t economists