The yuan continued its steady rise yesterday as its central
parity rate against the US dollar reached 7.2695.
The rate, the daily weighted average of prices given by market
players, hit a new high since China broke its peg against the
dollar in July 2005. Last Friday, it was 7.2779 against the
dollar.
The yuan's recent rise reflects "economic data", Zhou Xiaochuan, governor of the central bank,
said yesterday in Basel, Switzerland, where he was attending a Bank
for International Settlements meeting.
The country's trade surplus, rising prices and market sales of
foreign currencies by domestic institutions "may be the major
factors in the formulation of the exchange rate", Zhou said.
China's trade surplus rose by 52.2 percent in the first 11
months of 2007 from the same period of 2006. Although the growth
rate was 6.8 percentage points lower than in the January-October
period, analysts said the liquidity pressure remains large.
Meanwhile, galloping food and fuel costs have pushed growth in
the consumer price index (CPI), the main gauge of inflation, to 6.9
percent in November, the fastest pace since December 1996.
"The pressure from inflation is the main factor (behind the
rising yuan)," said Wang Tao, a Beijing-based senior economist with
the Bank of America.
Zhou's remark is in line with the wording of the monetary policy
report of the central bank for the third quarter of last year, she
said. The report had said the tools of interest and exchange rates
would be coordinated to anchor inflation expectations.
The weakening dollar is also a major factor in the yuan's rise,
she said. Hurt by the subprime crisis and worries that the US
economy may be severely hit, the dollar has remained weak in recent
months.
Wang said a rising yuan will help rebalance the domestic economy
as it would dampen exports, encourage imports and stabilize
inflation.
"China's imports would become cheaper, which will help ease the
domestic pressure on inflation," she said, adding that it would
also reduce foreign protectionism against Chinese products.
Although the appreciation would damage some sectors, it would
benefit the overall economy, she added.
But other economists warned that the economy could not afford a
fast-rising yuan.
"Most unskilled workers, for example, are in the export-oriented
sectors," said Zhang Jun, director of the China Center for Economic
Studies at Fudan University.
A fast-rising yuan would lead to mass unemployment, many
analysts said.
A stronger yuan may not contribute to a rise in domestic demand,
Zhang told China Daily. "There is no correlation between
them."
(China Daily January 8, 2008)
