China's yuan hits new high

Some analysts say the yuan is undervalued against the dollar by up to 40 per cent

Source: Al Jazeera
http://english.aljazeera.net/business/2010/06/20106254556835753.html

China has revised the exchange rate for the yuan, putting its currency at its highest level yet as international pressure builds on Beijing to allow the yuan to strengthen.

On Friday the Bank of China set the central parity rate, or the daily official level, at 6.7896 to the dollar, 0.3 per cent stronger than Thursday's 6.8100.

The rate is a weighted average of prices given by market makers, excluding highest and lowest offers.

It marks the yuan's strongest level since China freed its currency from an 11-year-old peg in July 2005 and moved to a tightly managed floating exchange rate.

On Friday the yuan weakened slightly in early trading to 6.7900 on China's main foreign exchange market.

'Basically stable'

In a vaguely-worded statement, the central bank said the yuan would remain "basically stable".

China has tweaked the rate up and down this week ahead of the G20 summit and has a history of letting the yuan strengthen slightly before sensitive events, seen as an attempt to defuse criticism that it keeps the currency too low, giving Chinese exports an unfair advantage.

Friday's move is widely seen as a bid to head off rancour at the upcoming G20 meeting in Canada following intense pressure on Beijing to embrace currency reform as part of efforts to enhance a global economic recovery.

Some experts say the yuan is undervalued against the dollar by up to 40 per cent.

Barack Obama, the US president, said on Thursday it was too early to determine the impact of China's limited currency reform although he viewed the move as "positive".

Speaking ahead of his meeting on Saturday with Hu Jintao, the Chinese president, on the sidelines of the G20 summit, Obama maintained that the "undervalued" yuan provided China "with an unfair trade advantage".

For the past two years China had effectively pegged the yuan at about 6.8 to the dollar to prop up exporters during the global financial crisis.

Criticism

The value of the yuan has long been a source of tension between China and its major trading partners, particularly the US and EU.

Critics say the policy gives Chinese producers an unfair advantage and prices competitors out of the market.

US legislators, unmoved by Beijing's action, have threatened to press ahead with legislation they said will treat "currency manipulation" as an illegal subsidy and enable US authorities to impose tariffs on Chinese goods.

China however repeated a warning on Thursday against "protectionist" retaliation over its currency policy, saying an appreciation in the yuan would not solve the Chinese trade surplus with the United States.

Brian Jackson, a senior analyst at Royal Bank of Canada in Hong Kong, said the yuan's limited moves this week might be enough to deflect criticism at the G20.

"This is not a big move, but it is significant," he told AFP.

"President Hu can point to it as evidence that China is serious about making its currency more flexible when he meets other G20 leaders in Toronto."

China announces yuan 'flexibility'

Source: Al Jazeera
http://english.aljazeera.net/news/asia-pacific/2010/06/201062022029833798.html

China has announced that it will - gradually - allow a more flexible exchange rate for its currency, a move welcomed by major trading partners such as the US, as well as the IMF.

China's central bank strongly suggested on Saturday that it was ready to break the yuan's two-year peg to the US dollar peg, saying on its website that "it is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility".

"The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with enhanced economic stability," the statement added.

But the People's Bank of China mentioned no specific policy changes, and ruled out any one-off revaluation or large-scale yuan appreciation, saying: "The basis for large-scale appreciation of the RMB exchange rate does not exist."

Chinese officials have said all along that any reforming of the yuan, also known as the renminbi (RMB) or "people's money", will be gradual.

The announcement, timed just before Hu Jintao, China's president, attends the G-20 summit in Toronto, Canada, follows warnings from Beijing earlier this week against making its currency policies a main focus of the meeting.

Beijing, which kept the yuan frozen against the dollar to help Chinese manufacturers compete amid weak global demand in the wake of the 2008 financial crisis, faces pressure from the US and other trading partners who contend the yuan is undervalued.

US welcomes move

Barack Obama, the US president, who pressed China over the yuan in a letter released on Friday welcomed the move towards removing the dollar peg in an indication of the danger of a market-roiling confrontation at the G20 summit.

"China's decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy," he said.

The European Commission also welcomed the decision, as did the International Monetary Fund.

But Beijing's announcement is unlikely to satisfy critics in the US congress, who argue that an undervalued yuan gives China's exporters an unfair advantage and have threatened to penalise China for it.

"This vague and limited statement of intentions is China's typical response to pressure," said Charles Schumer, a US senator from Obama's Democratic party and a leading critic of China's currency policy.

"Until there is more specific information about how quickly it will let its currency appreciate and by how much, we can have no good feeling that the Chinese will start playing by the rules," he said, pledging to press ahead with legal action to raise trade barriers.

Criticism

China, which has held the yuan at roughly 6.83 to the dollar since July 2008 in a move it defended as a source of stability during the recent global financial crisis, has come under intense criticism from abroad as its export juggernaut has roared back to life.

Much of the rest of the global economy remains sluggish and beset by unemployment in the wake of the financial crisis, and China's policy is seen as stealing jobs from foreign markets.

In particular, by keeping the yuan artificially cheap against the dollar, China makes its imports more attractive for US consumers while making US exports to China more costly, critics say.

That has contributed to a massive surplus in China's trade account with the US, sparking protests that the policy is at the direct expense of American jobs.

Timothy Geithner, the US treasury secretary who has delayed publication of a potentially embarrassing report that could cite China as a currency manipulator, also stressed that China's actions would speak louder than words.

"This is an important step but the test is how far and how fast they let the currency appreciate," he said.

Echoing that view, Jamie Metzl, the executive vice-president of the Asia Society, told Al Jazeera that China's announcement was "a positive step but a very preliminary step".

He said the international community needs to maintain its pressure on China over its currency and Beijing needs to be tested in the weeks and months to come to see that its actions will match its words.

Geithner's currency report, due on April 15, was put on hold until after the G20, which runs from June 26-27, to give China time to act.

Obama needs China's help on a range of other delicate issues, including sanctions against Iran and North Korea for their nuclear programmes.

But he must balance quiet diplomacy against an urgent domestic political need to be seen fighting China for US jobs before congressional elections in November.

G20 targets 'imbalances'

G20 leaders have promised to tackle so-called global macro imbalances, posed by massive trade surpluses and deficits.

Those are blamed for fostering a bubble in the US housing market in 2008, and contributing to the recent European sovereign debt crisis.

Economists say such "imbalances" are not sustainable in the long term, and warn they may trigger another damaging global financial crisis if investors take fright.

Beijing's recent insistence that the summit was the wrong place to talk about yuan flexibility could have overshadowed the meeting and China's announcement on Saturday appeared aimed at deflecting criticism.

Eswar Prasad, a former head of the International Monetary Fund's China division, called Saturday's move important "as it signals recognition by Chinese officials that a more flexible exchange rate is in China's own interest and also acknowledges its responsibility to the international community".

China to resist push on yuan policy

Source: PressTV
http://www.presstv.ir/detail.aspx?id=127077§ionid=351020404


With intensifying US pressure on China to raise the value of its yuan, Beijing says it will not succumb to an outside force to revalue its currency.

Chinese Assistant Finance Minister Zhu Guangyao dismissed speculations on Thursday that the upcoming trade talks between US and China would lead to a speedy yuan appreciation.

"Only the authorities of a sovereign country have the right to decide how to form the exchange rate," he said.

Countries should "work to maintain the stability of exchange rates between currencies so as to create a favorable environment for the global economic recovery," he added.

Critics argue that the yuan is artificially undervalued, adding that such low rating keeps exports relatively cheap granting Chinese exporters an unfair advantage over their rivals.

Earlier in March, the Governor of People's Bank of China Zhou Xiaochuan said China would eventually shift away from its special exchange rate policy.

However, with the global financial uncertainty caused by the euro zone sovereign debt crisis, China seems less prepared to allow its currency to rise against the dollar.