Wholesale & Business News in Asia and China

Beijing stands firm on its currency

From (Asia Times) BEIJING - The central parity rate of the yuan broke the 7.70 barrier against the US dollar on Tuesday - even as the US Congress was due on Wednesday to start a hearing on China’s alleged exchange-rate manipulation.

This also occurred just days before Vice Premier Wu Yi’s arrival in Washington to attend the second round of the semi-annual Sino-US Strategic Economic dialogue with US Secretary of the

Treasury Henry Paulson.

The mid-point rate stood at 7.6951 yuan to one greenback on Tuesday, the first trading day after the week-long May Day “golden week” holiday, according to the Chinese Foreign Exchange Trading System.

It was a gain of 104 basis points from the reference rate of 7.7055 on the last trading day before the holiday and the highest since it was de-pegged from the US dollar in July 2005.

This was the yuan’s 27th new high against the dollar this year.

Although it breached the psychological barrier of 7.70, it only shows that the currency is strengthening vis-a-vis the US dollar and does not have any special significance, said Yan Qifa, an economist with the Export-Import Bank of China.

The yuan’s revaluation has been faster recently, gaining 287 basis points in April, but “the process has remained largely stable in recent months”, Yan told the China Daily.

Zhao Xijun, finance professor at Renmin University of China, said the new rate indicates that “the yuan is becoming more flexible” after its revaluation in 2005. “The process has gone to a stage where market forces play an important role in determining the rate,” he said.

Market traders attribute the stronger mid-point rate to expected pressure ahead of the US congressional hearing on foreign-exchange “manipulation” by China and Japan.

While acknowledging that the event will have some short-term effect on the upward movement of the yuan, Zhao said the process has its intrinsic causes. “The impact [from the US hearing] is insignificant,” he said.

China’s economy - which grew by 11.1% in the first quarter - its trade surplus and swelling foreign-exchange reserves as well as speculative capital inflows are behind the rise of the yuan, Zhao explained. “We want to, for example, resort to exchange-rate adjustment to reduce the trade surplus.”

Washington has consistently demanded that Beijing speed up the revaluation process and has threatened punitive measures if China refuses. “Such measures will jeopardize the interests of both,” Yan said.

Zhao said the demands from China’s trade partners to revalue the yuan are often because of their domestic political and industrial interests.

China has set the direction of the yuan revaluation, but must move in line with its own situation, Zhao said.

The yuan has appreciated 5.4% since July 2005 and many economists expect it to rise another 4% against the US dollar this year.

Bookmark It

Hide Sites