Chinese economists say yuan depreciation "normal," but not long-term trend
2008-12-04 17:21:45
BEIJING, Dec. 4 (Xinhua) -- Chinese economists said they believed the recent yuan devaluation was caused by "objective factors," but the currency's long-term trend should not face a reversion, as strategic China-U.S. economic talks opened here Thursday.
China's currency weakened on Thursday. The yuan traded at 6.8837 per U.S. dollar as of 14:30 p.m. on over-the-counter market, from 6.8830 on Wednesday. It dropped to as low as 6.8845 per U.S. dollar in the morning.
The central parity rate of the yuan was 6.8502 yuan to the U.S. dollar on Thursday, according to the China Foreign Exchange Trading System, the same as Wednesday.
The yuan's central parity rate is based on a weighted average of market makers' price inquiries before the market opens on each business day. The rate is allowed to fluctuate within a band of 0.5 percent on either side of the mid-point.
The State Council, or the Cabinet, said it would use a series of means, including reserve requirement ratios, interest rates and foreign exchange rates to ensure ample liquidity for the banking system.
The Cabinet announced the decision late Wednesday at an executive meeting, presided over by Premier Wen Jiabao. Last month, it has unveiled a 4-trillion-yuan economic stimulus package, which aimed to offset adverse global economic conditions by boosting domestic demand.
The statement came amid market speculation that the yuan might depreciate against the U.S. dollar to help aid exports, which was battered by slackening external demand.
The yuan's reference rate has gained more than 6 percent against the greenback this year, but it was up less than 0.1 percent in the second half.
A "slight and mild" yuan depreciation was necessary because the currency has appreciated too fast since its peg to the dollar ended in July 2005, said Hua Min, department chief of world economy with Shanghai-based Fudan University.
A weaker yuan could help boost exports during the crisis, Hua said.
Tan Yaling, a research analyst with the Bank of China, believed the recent movement of the yuan was "normal and rational" market behavior as the currency has gained nearly 20 percent against the U.S. dollar since July in 2005.
However, the possibility of a periodic depreciation could not be ruled out, said Ding Zhijie, deputy dean of the finance school with the University of International Business and Economics.
According to Ding, the depreciation pressure came from the strengthening U.S. dollar and concerns about downward pressure on the economy as the financial crisis, which has evolved into an economic crisis, weighed on the economy.
A steep depreciation would not be possible currently, forecast China Academy of Social Sciences economist Liu Yuhui, which was likely to cause a range of negative impacts, including increasing capital outflow and deteriorating trade friction and protectionism.
Thursday also marked the first day of the fifth China-U.S. Strategic Economic Dialogue. A range of economic issues would be discussed, including the U.S. economy's recession and China's reduced economic growth.
Chinese Vice Premier Wang Qishan and the U.S. Treasury Secretary Henry Paulson co-chaired the opening dialogue on Thursday morning.
Editor: Du Guodong
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5 December 2008
XinHua News
Commerce chief: Yuan's depreciation "small and normal"
2008-12-05 00:37:54
BEIJING, Dec. 4 (Xinhua) -- The recent depreciation of China's currency against the U.S. dollar was normal and China won't rely on a weaker yuan to boost exports, Commerce Minister Chen Deming said on Thursday.
"The recent small fluctuation of the yuan against the dollar was completely normal. I'd call it the dollar strengthening, rather than the yuan depreciating," Chen told reporters at the fifth China-U.S. Strategic Economic Dialogue (SED).
China has taken a self-initiated, gradual and controllable approach to exchange rate reform since it ended the peg of the yuan in July 2005, and the principle has never changed, the minister said.
The yuan has since gained more than 20 percent versus the U.S. dollar as a result of market forces, Chen told reporters.
The currency had been stable since mid-September, when the financial crisis that originated in the United States worsened and increasingly began to affect the world, he noted.
It will remain stable if there is no big change in the international economic environment and all countries work together to respond to the crisis, he said.
He also said there are no signs of capital flowing out of China, which is still a good destination for foreign investment. Analysts said a weaker yuan could trigger capital flight.
The yuan fell as low as 6.8845 per U.S. dollar on the over-the-counter market on Thursday morning, declining by the 0.5 percent daily limit. It is allowed to trade by up to 0.5 percent against the U.S. dollar on either side of the central parity (reference) rate.
The depreciation this week sparked speculation that China was shifting its exchange rate policy to allow the yuan to weaken to help struggling exporters and save jobs.
"The current difficulty for exports is caused by market shrinkage. I don't count on the yuan's depreciation to boost exports," Chen stated.
"We think it is too early to see the latest move as a signal of a significant change in China's exchange rate policy," Tao Wang at UBS Securities wrote in a note on Wednesday.
The reference rate has been kept stable despite the fall by the daily limit on the over-the-counter market. Analysts said this situation showed the central bank didn't want a big shift in the exchange rate policy.
Wang warned the yuan's depreciation could run the risk of leading to protectionist responses from China's major export markets and a round of competitive devaluations in neighboring economies.
The yuan had for months remained steady against the U.S. dollar until the recent retreat. But it has appreciated by about 10 percent against the trade-weighted basket of currencies since August, as the U.S. dollar strengthened significantly against other major currencies, Wang noted.
Tan Yaling, a research analyst with the Bank of China, also believed the recent movement of the yuan was "normal and rational "market behavior as the currency has gained 20 percent against the U.S. dollar since July 2005.
The depreciation will "help remove some of the market's 'one-way-bet' mentality. We had been expecting some modest yuan weakness in the first half of 2009," Standard Chartered said in a note on Wednesday.
Wang forecast the yuan's rate against to the U.S. dollar would weaken to 7.0 by the end of 2008, but it could advance again to 6.8 at the end of 2009.
But if the U.S. dollar strengthened by more than 10 percent against the currencies of China's main trading partners, the yuan might weaken by about 5 percent against the U.S. currency, she added.
Editor: Yan
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