grimm
01-27-2005, 04:19 AM
Economist: China Loses Faith in Dollar
Wednesday, January 26, 2005
DAVOS, Switzerland - 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.
now what happens if the Saudis start pricing oil in Euros? long term effects? short term?
Wednesday, January 26, 2005
DAVOS, Switzerland - 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.
now what happens if the Saudis start pricing oil in Euros? long term effects? short term?