Al-Khateeb: Rate of Foreign tourists coming for recreational purposes soars 600% in 5 years    Saudi Arabia participates in OIC anti-corruption agencies' meeting in Qatar    Saudi Arabia implements over 800 reforms to drive rapid transformation    Al-Jadaan: Painful decisions were part of the reforms, but economy overcame them    Al-Swaha: Saudi Arabia is heading towards exporting technology in the next phase    Israel-Hezbollah ceasefire appears to hold as Lebanese begin streaming back to their homes    Al Rajhi: Saudi Arabia sets revised unemployment target of 5% by 2030 "300,000 citizens employed in qualitative professions"    Imran Khan supporters call off protest after crackdown    Five survivors found day after Red Sea tourist boat sinking    Russia launched a record number of almost 200 drones toward Ukraine    Al Hilal advances to AFC Champions League knockout stage despite 1-1 draw with Al Sadd    Saudi Arabia unveils updates on Expo 2030 Riyadh master plan at 175th BIE General Assembly Riyadh Expo Development Company established to oversee strategic planning, operations, and legacy development    Saudi FM attends Quadripartite meeting on Sudan in Italy    Best-selling novelist Barbara Taylor Bradford dies    Cristiano Ronaldo's double powers Al Nassr to 3-1 win over Al Gharafa in AFC Champions League    Al Ahli edges Al Ain 2-1, bolsters perfect start in AFC Champions League Elite    Most decorated Australian Olympian McKeon retires    Adele doesn't know when she'll perform again after tearful Vegas goodbye    'Pregnant' for 15 months: Inside the 'miracle' pregnancy scam    Do cigarettes belong in a museum?    Order vs. Morality: Lessons from New York's 1977 Blackout    India puts blockbuster Pakistani film on hold    The Vikings and the Islamic world    Filipino pilgrim's incredible evolution from an enemy of Islam to its staunch advocate    Exotic Taif Roses Simulation Performed at Taif Rose Festival    Asian shares mixed Tuesday    Weather Forecast for Tuesday    Saudi Tourism Authority Participates in Arabian Travel Market Exhibition in Dubai    Minister of Industry Announces 50 Investment Opportunities Worth over SAR 96 Billion in Machinery, Equipment Sector    HRH Crown Prince Offers Condolences to Crown Prince of Kuwait on Death of Sheikh Fawaz Salman Abdullah Al-Ali Al-Malek Al-Sabah    HRH Crown Prince Congratulates Santiago Peña on Winning Presidential Election in Paraguay    SDAIA Launches 1st Phase of 'Elevate Program' to Train 1,000 Women on Data, AI    41 Saudi Citizens and 171 Others from Brotherly and Friendly Countries Arrive in Saudi Arabia from Sudan    Saudi Arabia Hosts 1st Meeting of Arab Authorities Controlling Medicines    General Directorate of Narcotics Control Foils Attempt to Smuggle over 5 Million Amphetamine Pills    NAVI Javelins Crowned as Champions of Women's Counter-Strike: Global Offensive (CS:GO) Competitions    Saudi Karate Team Wins Four Medals in World Youth League Championship    Third Edition of FIFA Forward Program Kicks off in Riyadh    Evacuated from Sudan, 187 Nationals from Several Countries Arrive in Jeddah    SPA Documents Thajjud Prayer at Prophet's Mosque in Madinah    SFDA Recommends to Test Blood Sugar at Home Two or Three Hours after Meals    SFDA Offers Various Recommendations for Safe Food Frying    SFDA Provides Five Tips for Using Home Blood Pressure Monitor    SFDA: Instant Soup Contains Large Amounts of Salt    Mawani: New shipping service to connect Jubail Commercial Port to 11 global ports    Custodian of the Two Holy Mosques Delivers Speech to Pilgrims, Citizens, Residents and Muslims around the World    Sheikh Al-Issa in Arafah's Sermon: Allaah Blessed You by Making It Easy for You to Carry out This Obligation. Thus, Ensure Following the Guidance of Your Prophet    Custodian of the Two Holy Mosques addresses citizens and all Muslims on the occasion of the Holy month of Ramadan    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Case for yuan appreciation strong
By Alan Wheatley
Published in The Saudi Gazette on 23 - 03 - 2010

China accumulated currency reserves last year at the rate of more than $50 million an hour. That alone seals the case for a stronger yuan.
China's trade surplus fell 34 percent last year and its commerce minister reckons a deficit is on the cards this month. That alone seals the case for keeping the yuan steady for now.
Both proponents and opponents of scrapping the yuan's 20-month-old peg against the dollar have no shortage of statistical ammunition.
While the vast majority of economists favor depegging because it would give the central bank greater monetary policy leeway, they acknowledge that the purely economic case for a stronger exchange rate is not as clear-cut as it was in the run-up to China's landmark currency reform in 2005.
“Arguably in 2005 you had a stronger world economy and the outlook for export growth at that point looked a lot healthier than it does right now,” said Mark Williams, an economist who follows China for Capital Economics in London.
Williams favors a rise in the exchange rate, but he added: “In a sense, this is the worst time to do it.”
China revalued the yuan by 2.1 percent against the dollar in July 2005 and then let it climb nearly another 19 percent before calling a halt in mid-2008 to help its exporters ride out the global financial crisis.
The administration of US President Barack Obama is threatening to label China a currency manipulator next month, and US lawmakers are warning of trade sanctions, unless China lets the yuan resume its ascent.
But Chinese officials and economists are extremely wary.
“A country's currency appreciation is very limited in helping to rebalance global trade,” Commerce Minister Chen Deming said on Sunday.
Doubts abound
Apart from the uncertain outlook for global growth and exports, Lian Ping, chief economist at Bank of Communications in Shanghai, listed other fundamental reasons for standing pat.
One difference is that labour costs are now rising much faster than in 2005, eroding exporters' thin margins; another lesson from the past is that putting the yuan on a one-way rising track attracted huge volumes of capital into China, complicating monetary policymaking.
What's more, Lian added, China's trade surplus peaked in 2008 and was likely to shrink further this year.
“If the trade surplus continues to narrow in the next few months, I doubt China will need a significant rise in the yuan. Doing so will be very risky,” he said, noting 150-200 million Chinese are in export-related jobs. “That's not a small number.”
Tim Condon with ING in Singapore also has doubts about the economic case for appreciation.
After joining the World Trade Organisation in 2001, China's terms of trade improved as it became more attractive for overseas business. This triggered a foreign direct investment surge that increased China's productivity and swelled its trade surplus from about $25 billion a year pre-WTO to $102 billion in 2005.
A stronger exchange rate was thus required to avoid inflation. However, the terms of trade shock has dissipated since the trade surplus peaked at $296 billion in 2008, removing a key argument for a firmer yuan, Condon says.
He still expects China to let the yuan rise next quarter, by widening its trading band to plus or minus 3 percent a day from 0.5 percent now, but the reasons will be different than in 2005.
“It won't be a monetary policy measure. It's a structural reform measure,” he said.
Just do it
Williams at Capital Economics said the imperative for structural reforms to tilt the economy away from exports had only grown in the past five years, especially since the financial crisis had dimmed the long-run outlook for China's exports.
“The need to try and boost domestic incomes has strengthened, and a stronger currency is one way to do that,” Williams said.
“So there's a pretty strong case for taking steps now that you don't necessarily have to take to get through the next year or two, but that will help bring about the longer-term rebalancing that will be good for the Chinese economy.”
Williams acknowledged that a rising yuan was likely to be a magnet for speculative capital but said the People's Bank of China had demonstrated in 2007 and 2008 that it was perfectly capable of mopping up hefty inflows of foreign exchange.
“It's important to keep the magnitudes in perspective,” he said. “Over the last 12 months we have seen massive monetary expansion against which the sort of expansion you would get from capital inflows pales pretty much into insignificance.”
Ultimately, the yuan's fate lies in the hands of China's political leaders, not its technocrats.


Clic here to read the story from its source.