Yuan inches up as China delinks it from US dollar
By Elaine Kurtenbach |
June 22, 2010, Tuesday
|
Print Edition
Print Edition
China followed through yesterday on its pledge to allow greater flexibility in exchange rates, but said an appreciation in its currency alone could not rebalance world growth.
By late yesterday, the yuan was trading at 6.7971 to the US dollar in the spot market, strengthening from 6.8272 on Friday - as the central bank delivered on its weekend promise to give up the dollar peg imposed two years ago to help Chinese exporters cope with the global downturn.
"The yuan will gain very soon, but definitely not much," said Qian Qimin, a market analyst at Shenyin Wanguo Securities, in Shanghai.
The central bank said plans to allow greater currency flexibility were in line with China's own needs and would help the nation fight inflation, encourage manufacturers to improve efficiency and reduce the country's reliance on exports as a key driver for growth.
US Ambassador to China Jon Huntsman called the move a "genuine attempt" by China to have greater flexibility in its exchange rate mechanism. He said a stronger yuan would boost the purchasing power of Chinese buyers and help US exports.
The US and other trading partners complain that an undervalued yuan gives China's exporters an unfair advantage.
"When you stop to consider that every billion dollars in exports creates 22,500 jobs, that's a very big deal at a time when we're facing very high rates of unemployment," Huntsman said. "It takes an irritant off the table in the US-China relationship."
China's economy surged 11.9 percent in the first quarter of this year and exports jumped by nearly 50 percent over a year earlier in May, despite expectations that Europe's debt crisis would hit demand in the 27-nation European Union, China's biggest trading partner.
"The large trade surplus gives the government confidence and room to loosen controls over the exchange rate," Qian said, since a stronger yuan would make Chinese exports more expensive.
"The official announcement should be interpreted first and foremost as an important signal towards a more flexible exchange rate, rather than a significant revaluation of the Chinese yuan," UBS economist Wang Tao said.
While foreign manufacturers have welcomed the relief a stronger yuan would bring, exporters in China, already operating on razor-thin margins, were less pleased.
"The exchange rate problem is one we would have to face sooner or later. That is a fact we have to accept," said Bai Ming, deputy general manager of Zhejiang Mingfeng Car Accessories Co, which exports car covers to the US, Europe and South Korea.
Bai, whose factory employs 950 people, said his company's export orders were outpacing his capacity to meet them. But with labor and other costs rising, the company will have to find ways to stay competitive.
"What we are trying to do is to raise productivity and save costs. We cannot just sit back and wait," he said.
By late yesterday, the yuan was trading at 6.7971 to the US dollar in the spot market, strengthening from 6.8272 on Friday - as the central bank delivered on its weekend promise to give up the dollar peg imposed two years ago to help Chinese exporters cope with the global downturn.
"The yuan will gain very soon, but definitely not much," said Qian Qimin, a market analyst at Shenyin Wanguo Securities, in Shanghai.
The central bank said plans to allow greater currency flexibility were in line with China's own needs and would help the nation fight inflation, encourage manufacturers to improve efficiency and reduce the country's reliance on exports as a key driver for growth.
US Ambassador to China Jon Huntsman called the move a "genuine attempt" by China to have greater flexibility in its exchange rate mechanism. He said a stronger yuan would boost the purchasing power of Chinese buyers and help US exports.
The US and other trading partners complain that an undervalued yuan gives China's exporters an unfair advantage.
"When you stop to consider that every billion dollars in exports creates 22,500 jobs, that's a very big deal at a time when we're facing very high rates of unemployment," Huntsman said. "It takes an irritant off the table in the US-China relationship."
China's economy surged 11.9 percent in the first quarter of this year and exports jumped by nearly 50 percent over a year earlier in May, despite expectations that Europe's debt crisis would hit demand in the 27-nation European Union, China's biggest trading partner.
"The large trade surplus gives the government confidence and room to loosen controls over the exchange rate," Qian said, since a stronger yuan would make Chinese exports more expensive.
"The official announcement should be interpreted first and foremost as an important signal towards a more flexible exchange rate, rather than a significant revaluation of the Chinese yuan," UBS economist Wang Tao said.
While foreign manufacturers have welcomed the relief a stronger yuan would bring, exporters in China, already operating on razor-thin margins, were less pleased.
"The exchange rate problem is one we would have to face sooner or later. That is a fact we have to accept," said Bai Ming, deputy general manager of Zhejiang Mingfeng Car Accessories Co, which exports car covers to the US, Europe and South Korea.
Bai, whose factory employs 950 people, said his company's export orders were outpacing his capacity to meet them. But with labor and other costs rising, the company will have to find ways to stay competitive.
"What we are trying to do is to raise productivity and save costs. We cannot just sit back and wait," he said.
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