China To Revalue Yuan By 10-15%
HONG KONG, OCT 30: American Express Bank’s senior global economist said on Thursday the Chinese government would boost the value of the yuan up to 15 per cent next year to prevent its thriving economy from overheating.
The yuan currency peg has been a hot topic as US officials — most recently Commerce Secretary Don Evans in Beijing this week — have pushed China to adopt a more flexible currency.
US manufacturers argue the yuan’s fixed peg, around 8.28 to the dollar, undervalues the currency and gives Chinese exports an unfair advantage that costs US jobs.
There was a 60 per cent probability that China would revalue its currency by 10 to 15 per cent, American Express economist Kevin Grice predicted, bringing the yuan to 7 to 7.5 yuan to the dollar.
Most economists believed China will only loosen the yuan’s fluctuation band, from 0.3 per cent to a range of two to three per cent from the pegged rate.
Market expectations for a revaluation, reflected in the yuan one-year non-deliverable forwards, have faded after hitting a record premium of 5,200 points earlier this month. The premium was 3,150 points on Thursday, implying a 3.9 per cent stronger currency in a year’s time of about 7.96 yuan per dollar.
The US trade deficit with China hit a record $103 billion in 2002 and was on track to rise this year, but London-based Grice said China would not bow to US pressure.
“It will become patently clear to the Chinese authorities it’s in their best interest to slow the economy down,” he said.
Beijing has said repeatedly it would keep the yuan stable, shrugging off growing calls by Washington and other trade partners to let the yuan appreciate.
But China’s economy is growing at the fastest clip among major economies — a sizzling 9.1 per cent in the year to the third quarter — fuelling fears of economic overheating and inflation.
If China revalues, the rest of Asia’s currencies outside of Japan would appreciate as well, Grice said.
Hong Kong, however, should maintain its peg as it is helping the territory’s economy recover as its dollar currency is as cheap as it was in the early 1990s, he said.
“There will be pressure, but that would be very easily resisted by the (Hong Kong) authorities,” Grice said.
American Express Bank is a unit of US financial services company American Express Co.
— Reuters
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