A senior Chinese banker on Thursday said shock therapy to revalue
the Chinese currency and redress a huge trade gap with the United
States was not appropriate, but China should gradually float its
currency instead.
Zhu Min, general manager and advisor to the president for the Bank of
China, said the renminbi could, as a first step, trade in a
band of 0.3 to 2.5 percent against the US dollar. It is now pegged
near 8.28 to the dollar.
"The end-goal is to make the renminbi flexible and floatable.
The goal is not a one-off shock adjustment. The solution is to
build a system," he said, speaking at the annual World Economic
Forum in the Swiss ski resort of Davos.
He declined to give a time-frame for which China should move
toward a more flexible foreign exchange-rate regime, which the
Group of Seven finance ministers called for in September.
The Bank of China is China's biggest foreign exchange bank and
one of the "big four" state-owned commercial banks undergoing
restructuring in preparation for an eventual stock listing.
A bipartisan group of US senators has asked Vice President Dick
Cheney to use his trip to Davos to press China to float its
currency.
Some foreign investment banks have said China is likely to
revalue its currency by introducing a wider trading band, now
between 8.2760 and 8.2800 to the dollar, later this year.
China has resisted growing international calls, most notably
from the United States, to revalue its currency, but pledges
gradual reforms to make the exchange rate more flexible.
Zhu said long-term economic shifts within China would go some
way toward addressing the yawning trade gap that has spurred US
officials to pressure China to strengthen its currency and help US
manufacturers compete.
But the United States is benefiting from China using its trade
surplus with the United States to buy US Treasuries as a reserve
currency, along with other Asian nations. In the long run, Zhu
said, this was not sustainable.
"All the Asian countries hold dollars for security reasons, but
at some point this has to end," said the US educated economist.
"There is a love affair. But everybody knows that this love affair
has to end."
Over time, he said, China's pace of export growth would wane,
weakening its ability to buy dollar-denominated assets.
"China will focus more and more on domestic demand, which is
growing fast. Then it won't be able to finance the US deficit," he
said. "We cannot keep exporting our goods at a growth rate of 30
percent. That's too much."
China plans to meet with G7 deputy finance ministers to discuss
its steps toward integrating the global economy, raising
speculation in currency markets that it may soon move to revalue
its currency.
(Xinhua News Agency January 24, 2004)