China rejects US demand for revaluation
By Richard McGregor in Beijing
Published: May 24 2005 18:31 | Last updated: May 24 2005 18:31
China rejected on Tuesday a detailed prescription from Washington for a quick move to a more flexible exchange rate system, beginning with a 10 per cent revaluation of the renminbi.
The US proposal also generated scepticism from China-based analysts, who said a large one-off revaluation would run against the gradualist traditions of Chinese policymaking and undermine the government's mantra of exchange rate “stability”.
A foreign ministry spokesman, in response to questions about a Financial Times report that the US Treasury had made a revaluation demand via unofficial envoys, said many US visitors had come to China recently carrying “such messages” about revaluation.
But he repeated Beijing's view that it would not bow to foreign pressure on the issue.
“China will not do this when internal conditions are not ripe, no matter how great the external pressure is,” said the spokesman, Kong Quan.
China has long said it will dump the decade-old peg to the US dollar in favour of a more flexible exchange rate system, but it has not commented on the timing of such a move.
Ha Jiming, chief economist at China International Capital Corporation, the country's largest investment bank, said that, although the timing was right for a change in currency policy, 10 per cent was too large a move at the beginning.
“It remains too risky to relax the peg too much, so China may well start from a 5 per cent revaluation then repeg the renminbi to a basket of currency,” said Mr Ha.
Zuo Xiaolei, chief economist with Galaxy Securities, said the currency had now become a political rather than economic issue, militating against a large move. “The making of decisions in China is mostly consensus-based . . . so that might lead to a compromise of a 3 to 5 per cent rise in the renminbi's value.”
¦ European Union and Chinese trade officials were on Tuesday discussing ways to avoid a potentially damaging stand-off over textiles imports from China, writes Tobias Buck in Brussels.
Peter Mandelson, the EU trade commissioner, last night met Gao Hucheng, China's special textiles negotiator. Mr Mandelson also discussed the issue with Bo Xilai, the Chinese commerce minister, earlier in the day.
Failure to find a negotiated settlement would spark the imposition of unilateral safeguard measures by the EU to reduce Chinese shipments of T-shirts and flax yarn.
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