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Robert Mundell Urges to Maintain Stable Yuan

The international pressure to revalue the yuan is becoming more an issue of political concern than of economic significance, according to several top economists who contend that China should maintain the current exchange rates for renminbi.

Robert Mundell, a famed 1999 Nobel laureate in economics, said over the weekend, "There's never before in history (been a situation) that international monetary authorities ... try to pressure a country with an inconvertible currency to appreciate its currency."

Mundell was speaking to the forum of fast-growing enterprises and financial markets with the Sixth Beijing International High-Tech Expo.

The Columbia University professor said that China should not appreciate or devalue the renminbi in the foreseeable future.

"Appreciation or floating of the renminbi would involve a major change in China's international monetary policy and have important consequences for growth and stability in China and the stability of Asia," Mundell said.

Experts at the forum shared Mundell's view that there is no convincing evidence that China should alter its yuan policy at the moment.

Fred Hu, managing director of Goldman Sachs (Asia), told the forum that the yuan is not central in tackling the main problems facing the world economy today.

According to Hu, China's economy, despite its rapid growth, accounts for a meagre 3.5 per cent of the global gross domestic product (GDP). Even the remarkable annual foreign direct investment (FDI) inflows to China are not determined by an "excessively undervalued" currency as some people suspect, but rather by the country's attractive domestic market and growth fundamentals, Hu said.

Experts said that China's trade surplus, a key target in the criticism of the yuan policy, has actually little direct link with the exchange rate.

"China's recent export performance has been truly spectacular, but it is primarily driven by the country's decade-long trade reforms, dynamic private enterprises, abundance of cheap labor and most importantly, multinational companies' growing processing and assembly operations in China," said Hu.

The country's exports have consistently outperformed throughout the highs and lows of the yuan, according to experts at the conference. They added that the export boom has persisted even during the turbulent years of Asia's financial crisis, when there was pressure for the yuan to be devalued.

Zhu Min, a senior adviser with the Bank of China, said that the pressure for renminbi to appreciate does exist, mostly because the short-term speculative "hot money" of some US$20 billion-30 billion sneaked into China in the year's first half as speculators bet on the yuan's sharp appreciation.

(China Daily September 15, 2003)

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