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To: Rarebird who wrote (37722)	7/24/1999 8:02:00 PM
From: Rarebird	Read Replies (2) \| Respond to of 116764

FOCUS-China papers clamour for yuan policy changes 09:14 a.m. Jul 16, 1999 Eastern BEIJING, July 16 (Reuters) - In a bold departure from Beijing's repeated vows not to devalue its yuan currency Chinese newspapers and economists have called for more exchange rate flexibility. The China Market Economic News quoted a semi-official domestic think-tank as saying the central banks oft-repeated ''no devaluation'' policy was restraining economic growth. ''If the domestic economy does not show concrete improvement, insisting on the policy of not devaluing the renminbi (yuan) will only make the room for manoeuvre in macroeconomic adjustment smaller,'' it quoted the China Development Institute (CDI), as saying. ''That will make the current deflationary situation hard to change and exacerbate domestic economic woes,'' the newspaper said in an edition seen on Friday. In a separate newspaper commentary, State Development Bank economist Gao Jian also called for a change in exchange rate policy ''at a suitable time.'' The article in the official China Securities newspaper said a fixed-exchange rate economy such as China's could choose to fire up demand through either monetary policy or exchange rate policy. ''But the effectiveness of exchange rate policy in stimulating exports and limiting imports is difficult to replace with other measures,'' he added. While Chinese scholars are free to study alternative economic policies, opinions that diverge too far from Beijing's point of view are seldom seen in newspapers. However, China often tests public response to controversial moves by publishing them through academic opinions. China's struggling exporters have privately pressured the government for a devaluation to help them compete against other Asian rivals. China's central bank chief Dai Xianglong said on Monday the exchange rate for the yuan would be determined by market factors, sparking worries across the world Beijing was considering floating its currency. Dai said China's favourable balance of payments position supported the currency. CDI also said China's foreign exchange reserves still favoured the stability of the yuan but economic growth was being throttled by the yuan policy. ''The real threat to the stability of the renminbi exchange rate is not from the outside but from the domestic side,'' it said. The CDI said Beijing should ''re-adjust its exchange rate policy'' as its crisis-hit Asian neighbours have recovered a lot, and make its currency policy cater to ''macroeconomic policy designed to kickstart domestic demand.'' The think-tank, based in the southern city of Shenzhen, said China should relax the fluctuating range of the yuan exchange rate in the domestic market so as to make ''the exchange rate policy more elastic.'' Although the CDI is affiliated with the State Council, or cabinet, its research papers often show a strong independent streak as the institute is not beholden to the government for much of its funding. China, which has said repeatedly it will not devalue the yuan in the near term, maintains tight controls on the currency. It is not freely convertible on the capital account, but the government does allow trade in the yuan on a national foreign exchange market. In the first half of 1999, China's gross domestic product was up 7.6 percent from the same period last year, the State Statistical Bureau said on Friday. But alarming declines appeared nearly across the board. State fixed asset investment was up only 12.1 percent year-on-year in the second quarter, compared with 22 percent in the first three months. Retail sales rose a lacklustre 6.4 percent year on year in the first half, actual foreign direct investment fell 9.2 percent, and exports fell 4.6 percent. There is still one policy that China has not tried, and that is devaluation -- a policy advocated by one Peking University economist who asked not to be named because his view is domestically controversial. ''The exchange rate has become a major obstacle in reflating the economy,'' he said. ''China should take an opportunity to lower the yuan's exchange rate to spur exports. Otherwise, the effectiveness of monetary and fiscal policies would be affected.''