Call for more flexibility after US downgrading
By Feng Jianmin |
August 9, 2011, Tuesday
|
Print Edition
Print Edition
CHINA should allow greater flexibility in its currency and macro economic policies to ease the negative impact of the downgrading of the United States' credit rating, economists said yesterday.
Although the downgrade led to an immediate tumble in global equities, a potential slowdown of economic growth in Europe and the US was more worrisome and may have more lasting effects on emerging markets, they said.
Yesterday, China's yuan rose the most since April and hit a new high of 6.4305 against the US dollar.
The constant increases have reignited calls to diversify China's huge foreign-exchange reserves, a majority of which are invested in US assets.
"China should keep an eye on a downward trend in the economies and financial markets in Europe and the US, which will have a negative impact on the Chinese economy, especially exports, shipping and the commodities sectors," said Ma Jun, chief China economist at Deutsche Bank. "The Chinese government should arrange plans in advance and prepare more flexible macro policies."
Ma observed a correlation in the US gross domestic product and China's exports, and a JP Morgan report pointed out that every 1 percent decrease in the US GDP could result in a similar 1 percent decrease of GDP in China.
Meanwhile, economists suggest a floating of yuan exchange rates to hedge risks on China's huge foreign reserves. Yesterday's stronger yuan was a signal that the Chinese government would allow the yuan to appreciate, economists said. But the yuan may weaken this week on risk aversion after the US downgrading, and may pick up again after the panic subsides.
"Today's jump is an extension of yuan's continuous appreciation," said Li Wei, a economist with Standard Chartered Bank. "But we cannot dictate the yuan's trend depending on a single-day performance."
In the short term, the US dollar will strengthen as investors are prone to sell yuan and other currencies of emerging economies due to risk aversion, Li said. But the dollar will weaken in the next few weeks if there are signs of China choosing to sell its US assets to diversify the country's foreign reserves, he said.
The yuan is widely expected to end at 6.30 against the US dollar by the end of 2011.
Yu Yongding, a former central bank adviser, is among Chinese economists calling for more flexible currency exchange rates and diversified foreign reserves to hedge the risks of a weakening US economy and dollar.
China should stop the policy that encourages buying more dollars so as to strengthen the dollar and limit appreciation of the yuan, he said.
Although the downgrade led to an immediate tumble in global equities, a potential slowdown of economic growth in Europe and the US was more worrisome and may have more lasting effects on emerging markets, they said.
Yesterday, China's yuan rose the most since April and hit a new high of 6.4305 against the US dollar.
The constant increases have reignited calls to diversify China's huge foreign-exchange reserves, a majority of which are invested in US assets.
"China should keep an eye on a downward trend in the economies and financial markets in Europe and the US, which will have a negative impact on the Chinese economy, especially exports, shipping and the commodities sectors," said Ma Jun, chief China economist at Deutsche Bank. "The Chinese government should arrange plans in advance and prepare more flexible macro policies."
Ma observed a correlation in the US gross domestic product and China's exports, and a JP Morgan report pointed out that every 1 percent decrease in the US GDP could result in a similar 1 percent decrease of GDP in China.
Meanwhile, economists suggest a floating of yuan exchange rates to hedge risks on China's huge foreign reserves. Yesterday's stronger yuan was a signal that the Chinese government would allow the yuan to appreciate, economists said. But the yuan may weaken this week on risk aversion after the US downgrading, and may pick up again after the panic subsides.
"Today's jump is an extension of yuan's continuous appreciation," said Li Wei, a economist with Standard Chartered Bank. "But we cannot dictate the yuan's trend depending on a single-day performance."
In the short term, the US dollar will strengthen as investors are prone to sell yuan and other currencies of emerging economies due to risk aversion, Li said. But the dollar will weaken in the next few weeks if there are signs of China choosing to sell its US assets to diversify the country's foreign reserves, he said.
The yuan is widely expected to end at 6.30 against the US dollar by the end of 2011.
Yu Yongding, a former central bank adviser, is among Chinese economists calling for more flexible currency exchange rates and diversified foreign reserves to hedge the risks of a weakening US economy and dollar.
China should stop the policy that encourages buying more dollars so as to strengthen the dollar and limit appreciation of the yuan, he said.
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