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Need for Stable Currency Reiterated

The Chinese media and economic researchers have reiterated Beijing's determination to defend a stable yuan on the eve of US Treasury Secretary John Snow's China visit to press for a revaluation of the Chinese currency.

Keeping the renminbi exchange rate basically stable is not only conducive to the sustainable and stable development of the Chinese economy and finance but also benefits global economic development, the official Xinhua News Agency says in a commentary yesterday, adding that allowing the yuan to appreciate at present will do more harm than good to the Chinese economy.

So "maintaining the stability of the yuan is a long-term principle that should be upheld in China..." the commentary says.

Meanwhile, an editorial in Guangzhou-based 21st Century Business Herald - a leading economic newspaper - also strongly warns against the potential harm of raising the value of the yuan.

"If China caves in to international pressure to allow the yuan to appreciate, it will create a bad precedent to undermine China's independent economic policy," the newspaper says in its Monday edition.

The comments were apparently aimed at defusing new pressure for the yuan's appreciation expected from Snow, who arrives today in Beijing for a two-day visit.

Amid increasing criticism that an undervalued Chinese currency is giving the country's exports an unfair price advantage, Snow is set to focus on Beijing's currency policy during his meeting with Zhou Xiaochuan, China's central banker.

Snow and the White House have been under mounting pressure from some American legislators and manufacturers, who blame soaring unemployment and corporate bankruptcy in the United States for a relatively inexpensive yuan.

The American Manufacturers Association has urged the Bush administration to step up its pressure on China to move to a market system for fixing the yuan's exchange rate - China has been implementing a managed float system to keep the yuan at about 8.28 to the greenback.

The Xinhua commentary, however, doubts the wisdom of picking the current Chinese exchange-rate policy as a scapegoat for economic problems of countries such as the United States and Japan.

It notes that China's trade with other countries is reciprocal and mutually beneficial and the Chinese economy and other economies are complementary.

Given the fact that the sluggish economic growth in some countries is a result of their own structural problems, the commentary says, the yuan revaluation is not a panacea at all.

"On the contrary, allowing the yuan to appreciate will undermine the purchasing power of consumers in countries that import Chinese products and cause economic losses to foreign enterprises who have invested in China by pushing up their costs and the blunting competitive edge of their products," it says.

In the face of the US demand for a yuan revaluation, economic researchers called for "negotiation intelligence and skills" to defend the national interests while urging for positive measures to help ease pressure for a stronger yuan.

Zhao Jingxia, a researcher with the University of International Business and Economics, said the support from some American multinationals and prestigious economists for a stable yuan may be used as the best bargaining chip for China.

Stephen Roach, chief economist at the US investment bank giant - Morgan Stanley - said in early July that it "would be a serious mistake" to put pressure on China to revalue its currency.

China's increasing imports from other countries, especially Japan and the United States, may also be cited to justify the country's firm stand in defending the stability of yuan, according to Zhao.

In the first seven months of this year, China's imports jumped by 43 percent year on year, compared with 33 percent for exports; and imports from Japan alone totalled 566 billion yen (US$4.8 billion) in the month.

As another sign of the Chinese Governments' efforts to maintain a stable yuan, the country has taken measures to curb illegal capital inflows.

The influx of hot money in a gamble that China would revalue its currency was estimated to reach as much as about US$30 billion in the first half of this year.

(China Daily September 2, 2003)

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