'RMB undervaluation' claims defy economic logic

Tree grafting US-style [By Jiao Haiyang/China.org.cn]

U.S. Department of the Treasury's Assistant Secretary for International Finance Charles Collyns recently said that the United States will continue to put pressure on China before the APEC summit, urging it to accelerate the pace of RMB appreciation.

Drastic fluctuations in RMB exchange rate partly due to speculation

The central parity rate of the RMB against the U.S. dollar set new highs four times prior to the G20 summit, rising from 6.35 to 6.32. It even broke 6.32 for the first time, setting a new record since the reform of the RMB exchange rate system.

Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics, said that the recent moderate fluctuations in the RMB exchange and the repeated new highs of the RMB exchange rate against the U.S. dollar have mainly resulted from the economic downturns in Europe and the United States and their relaxed monetary policies.

However, the RMB exchange rate may further appreciate in the long term and China will promote its appreciation in a gradual manner.

RMB exchange rate stands within a basically reasonable range

China’s Minister of Commerce Chen Deming has reiterated that the RMB exchange rate is within a basically reasonable range. China's trade surplus is only a little above 1 percent of GDP, and its overall international balance of payments surplus is far below 3 percent of GDP.

Tan Yaling, director of the China Forex Investment Research Institute, predicted that the RMB exchange rate would face marked pressure for depreciation in the future and show a mixed trend. The appreciation of RMB exchange rate will likely continue with a limited extent and weaker momentum, while clear signs of its depreciation will emerge. The RMB will possibly depreciate to a greater extent than its appreciation.

Guo said that the pace of RMB appreciation would gradually slow because China's economic growth has slowed. The commerce minister's remarks also showed that China will continue with the RMB exchange rate reform according to its own conditions, instead of changing its established policy due to external pressure.

"The RMB has room for further appreciation, but this does not mean it should appreciate sharply," Guo said.

RMB exchange rate should be determined by supply and demand

"Since China initiated the RMB exchange rate reform in 2005, the value of the RMB has risen over 30 percent against the U.S. dollar, but the U.S. government still argues that the RMB is undervalued by 40 percent against the dollar. The United States has politicized the RMB exchange rate issue and will continue to make such unreasonable requests that are not in line with economic logic to satisfy its political needs," said Zhao Xijun, an economist at Renmin University of China, adding that the real purpose of the U.S. politicization of the RMB exchange rate issue is to distract attention away from its domestic problems.

"The politicization of economic issues is not conducive to the healthy development of bilateral relations," Zhao said. The RMB exchange rate should be determined by the market forces of supply and demand, and should not be used as a political tool. The politicization of the RMB exchange rate issue by certain U.S. politicians who focus more on their personal interests has damaged the interests of both Chinese and American people.