Posted on 01/26/2005 12:59:33 PM PST by dilbert80
Economist: China Loses in Dollar Stability Wednesday January 26, 3:47 pm ET By Edith M. Lederer, Associated Press Writer China Has Lost Faith in Stability of U.S. Dollar, Top Chinese Economist Says at World Forum
DAVOS, Switzerland (AP) -- China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said Wednesday at the World Economic Forum. At a standing-room only session focusing on the world's fastest-growing economy, Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn't whether to devalue the yuan but "to limit it from the U.S. dollar."
But he stressed that the Chinese government is under no pressure to revalue its currency.
China's exchange rate policies restrict the value of the yuan to a narrow band around 8.28 yuan, pegged to $1. Critics argue that the yuan is undervalued, making China's exports cheaper overseas and giving its manufacturers an unfair advantage. Beijing has been under pressure from its trading partners, especially the United States, to relax controls on its currency.
"The U.S. dollar is no longer -- in our opinion is no longer -- (seen) as a stable currency, and is devaluating all the time, and that's putting troubles all the time," Fan said, speaking in English.
"So the real issue is how to change the regime from a U.S. dollar pegging ... to a more manageable ... reference ... say Euros, yen, dollars -- those kind of more diversified systems," he said.
"If you do this, in the beginning you have some kind of initial shock," Fan said. "You have to deal with some devaluation pressures."
The dollar hit a new low in December against the euro and has been falling against other major currencies on concerns about the ever-growing U.S. trade and budget deficits.
The U.S. currency came under some pressure Wednesday, drifting lower versus most currencies including the Japanese yen and the euro, as dealers mulled the Chinese official's statements.
Fan said last year China lost a good opportunity to do revalue its currency, in July and October.
"High pressure, we don't do it. When the pressure's gone, we forgot," Fan said, to laughter from the audience. "But this time, I think Chinese authorities will not forget it. Now people understand the U.S. dollar will not stop devaluating."
Asked how speculation about revaluation could be curbed, he noted that China imposed a 3 percent tariff on Chinese exports.
Some Chinese experts say that perhaps inflation can be reduced this year, "but I'm not that optimistic," Fan said, noting that fuel prices keep rising.
"So maybe China (will) have 4-5 percent inflation in 2005," he said.
Fan, whose nonprofit institute specializes in analyzing the Chinese economy, stressed that the country's development is a long-term process that will take decades, maybe a century.
Since China's economic modernization began over a decade ago, 120 million rural laborers have moved into cities, but another 200 million or 300 million people need to move into the cities from the countryside to spur development, he said.
"The income disparity is huge, and income disparity will stay with us for a long time, as long as those 200 to 300 million rural laborers stay in the countryside," Fan said.
Nonetheless, William Parrett, chief executive of Deloitte Touche Tohmatsu, told the panel that Chinese companies are making significant progress in becoming global giants, led by state-owned companies.
"It's probably at least 10 years before the objective of the government of 50 of the largest 500 companies in the world being Chinese" is achieved, he said.
I guess GW's solution is to let another million of uneducated third world immigrants in...
Just let it burn baby !!
Mmmmm. That probably means no more artificial peg.
If they do there will be price pressure on their manufacturers trying to distribute in our market. If they lose our market. . . .
bump
I'm pretty damn sure both instantaneous and integrated oil prices are relevant to the economic outlook.
Track them out in time and fainst inflation. You selectively use data to butress a point and thereby mischaraterize the meaning of the data. That was my point.
I think what's happening to the price of oil,copper,milk , etc. over the last 3 years is far more important to what will happen in 2005,2006 than what happened back in 1974...
Thanks. I've enjoyed the forums so far though I must admit there seem to be an awful lot of neo-cons posting as opposed to "Republicans". I'll keep reading!
Exactly. I watch Lou Dobbs every day. Don't always agree with him but at least he's concentrating on the immigration issue. I'm not a bigot! I just want our borders closed except to those that apply legally. I want money spent on securing them, not on "guest worker" (read amnesty) programs and I want GW to start taking the debt seriously!
I said "The GSE's lend DOLLARS, not yuan!"
And you said "WRONG!"
Very funny...
Do you really think that FNMA and GNMA write mortgages denominated in yuan?
Saaayyy...
Before you joined this discussion, did you "tie yuan on"?
Its interesting that you know the content of of Fannie's books when they themselves are incapable of making accurate financial statements at this time.
"they just buy government securities, they do not finance government debt" -- that's financing govt debt.
Who said the Chinese hold 11 trillion in debt from us? They finance the govt debt, not the economy. Holding about 500 billion. Again , the question who is going to buy that debt when the Chinese don't?
Of course, Geo. Bush isn't going to stop spending.
No one said that, read what I wrote.
Thanks for the article.
I do not doubt that, among its many failings, FNMA has speculated in foreign currency markets. The financial health of FNMA is a serious topic to be discussed another day.
But, IMHO, while long-term interest rates in the US are so low, the question of whether "China has lost faith in the dollar" is a big yawn...
IF and WHEN long-term interest rates in the US rise above their historic averages, I MAY see your point.
But, for now, our "problem" seems to be that foreign investors are so eager to invest in the US, that they are willing to accept low nominal yields as the price of doing so.
China could decide, (and has) to invest in its own military.
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