For nearly a decade, Beijing has tied its currency tightly to the US dollar and kept it from trading in global markets -- a strategy that brought stability and helped shield China from the 1997 Asian financial crisis.
But as exports surge, China is facing growing demands to raise the value of the yuan.
Washington and other governments complain the currency is too cheap and gives Chinese exports an unfair advantage, hurting non-Chinese companies and wiping out jobs in countries trying to compete with China.
Officials in China say they have no immediate plans to alter the exchange rate or let the yuan trade freely. But they are looking at ways to overhaul currency controls to help the country's businesses and to lessen foreign pressure for a stronger yuan.
"We do have several plans under study, but they can't be disclosed before it's officially announced," said an official of China's State Administration of Foreign Exchange who declined to identify herself.
Large amounts of dollars, yen and other foreign currency flow into China, but strict controls keep most of it from leaving the country, allowing Beijing to amass US$340 billion in foreign reserves as a buffer against fiscal instability in a crisis.
Possible changes that could lessen demands to raise the value of the yuan include easing those rules to let Chinese companies and individuals obtain more foreign currency to invest or bank abroad, economists said.
"Then the potential outflow can start to balance the huge inflows, which have been putting pressure on the yuan to rise," said Frank Gong, an economist in Hong Kong for Bank of America.
China's central bank has kept the yuan fixed at about 8.28 to the US dollar since 1994.
The yuan is allowed to fluctuate, but only by a fraction of 1 percent, in closely supervised trading by those who have cleared official hurdles required to obtain foreign currency.
The system of controls insulated China from the upheaval of 1997, when traders drove down freely traded Asian currencies, causing financial collapse in Thailand, Indonesia and elsewhere.
But the controls prompt complaints from foreign investors who have trouble taking home profits and by Chinese companies hoping to expand abroad.
US Secretary of the Treasury John Snow, visiting Shanghai last month, said Washington hopes to see China adopt more flexible exchange rates.
"We understand that the Chinese government is interested in moving toward market-based, flexible exchange rates and that is something we support," Snow said. "China has indicated ... that they intend to create more flexibility on the renminbi [yuan] and they are to be encouraged in doing so."
Maintaining the dollar link is an increasingly complex task for regulators. The state newspaper 21st Century Business Herald reported on June 30 that China's central bank, even with currency controls, has to buy huge amounts of dollars every day to stabilize the yuan, though the report didn't disclose how much it has to purchase.
A spokesman for the central bank wouldn't give any details of the purchases or possible policy changes.
China could also aid the situation by widening the trading band, or the amount that the yuan is allowed to fluctuate, economists say. Such a move would reduce the need for the central bank to intervene in the market.
Chinese officials say eventually the yuan will be allowed to trade freely. But they scrapped a plan to relax controls by the late 1990s and now won't publicly set a date.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)