Bloomberg News

China Must Keep Yuan From Hurting Exports, NDRC Researchers Say

March 23, 2012

China must prevent a significant strengthening of the yuan that would harm exports by compounding difficulties from rising labor and energy costs, two government researchers said.

“If the global economic situation continues to deteriorate, China should prevent the yuan from following the U.S. dollar to appreciate against other currencies or China’s exports, particularly those to emerging markets, would be seriously hindered,” Bi Jiyao and Zhang Yi, researchers affiliated with the National Development and Reform Commission, said in an article presented at a trade forum in Beijing today.

China kept the yuan’s value steady from July 2008 to June 2010 to help exporters weather a global recession and policy makers have kept it from strengthening for much of 2012. The global economic recovery will be “tortuous,” Chinese Premier Wen Jiabao said in his state-of-the-nation address March 5, setting a target of expanding imports and exports by a combined 10 percent, less than half of last year’s pace.

“If the global economy recovers, then China can consider pushing for a gradual appreciation of the yuan against a basket of currencies to help improve the structure of exports,” Bi and Zhang wrote, referring to an upgrade in the types of products sold overseas.

Bi is director of the foreign economic research institute under the NDRC, China’s top economic-planning agency. Zhang is a researcher at the institute.

Trade Forecast

China’s exports may rise by between 11 percent and 15 percent while inbound shipments may increase by between 13 percent and 17 percent this year from 2011, leaving a trade surplus of about $150 billion, according to Bi and Zhang. Exports (CNFRCEXY) grew 20 percent and imports expanded 25 percent last year.

The yuan’s daily reference rate rose the most this week since October to a record today, snapping five weeks of declines. Wen and central bank officials this month pledged greater two-way flexibility in the currency. The yuan weakened 0.1 percent to 6.3078 per dollar as of 4:30 p.m. in Shanghai today.

China faces a bigger challenge in keeping the “basic stability” of its currency this year because of changes in capital flows, countries’ monetary policies, the European debt crisis and uncertainties in the dollar’s trend, the researchers wrote.

Signs of capital flowing out of the world’s second-largest economy in the last quarter of 2011 helped prompt the government to cut lenders’ reserve ratios for the first time in three years in November. The nation reported its biggest trade deficit since at least 1989 last month as exports rose less than forecast and imports surged.

Airplane Imports

February’s trade shortfall resulted from higher commodity prices and was also driven by a 45 percent increase in airplane imports, the government researchers wrote in today’s article. “A monthly deficit won’t occur again” when seasonal issues fade, Bi and Zhang wrote.

Separately, China wants to increase the proportion of exports to emerging markets and from the nation’s central and western regions, Zhong Shan, a vice minister of commerce, said at the same trade forum today. The government will bolster support for export rebates and maintain a stable yuan amid uncertainties in the world recovery and rising risks of a euro- area recession that may hinder trade growth, Zhong said.

Wang Shouwen, head of the Commerce Ministry’s foreign trade department, said he’s confident China can reach the 10 percent trade target this year. The second quarter will be a “peak period” for exporters signing orders, he said at the forum.

To contact Bloomberg News staff for this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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