China may end the yuan's decade-old fixed exchange rate to the US dollar, allowing its currency to strengthen and slow export-led economic growth and inflation, analysts and economists said, adding that they expect China to revalue the yuan by the end of the year.
China, which pegged its currency to the dollar in 1994, first said in March 2002 it may consider linking the yuan to a basket of currencies as it has had to buy US dollars to keep a value of 8.3 yuan per dollar, putting more money into circulation.
"China needs exchange rate flexibility," said Fred Hu (
"The economy is booming, inflation is heating up and money and credit growth is so fast. That implies China would be better off to do this sooner rather than later," he said.
China's economy, the world's sixth largest, will grow 8 percent this year, from an estimated 8.6 percent last year, the fastest among the world's top 10 economies, economists said.
Federal Reserve Chairman Alan Greenspan said on Dec. 11 China's increased dollar-buying to preserve the peg was "overheating" the economy. The next day, the Beijing-based statistics bureau said on its Web site inflation accelerated to 3 percent in November, the fastest in 6 1/2 years.
"Rising inflation is ultimately the most likely trigger for a shift in the exchange-rate regime," said Harvard University Professor Kenneth Rogoff, the former chief economist of the International Monetary Fund. "There are strong pressures" for the yuan to appreciate.
Traders have been increasing bets that China will allow the yuan to strengthen through freely traded forward contracts, which imply the yuan would rise to 7.847 in a year's time if not pegged.
China will wait until at least the third quarter to widen its band, analysts said. On average, they predicted a widening of 3.1 percent either side of the fixed rate, compared with the current 0.3 percent.
Analysts also said China will adopt a peg against a basket of currencies, including the dollar.
"The chances are high for a move by the spring," Jim O'Neill, Goldman's head of global economic research, wrote in a Dec. 8 report. Goldman in June predicted China would allow the yuan to move by 2.5 percent above or below the fixed rate by year-end and by 5 percent within a year.
China's M2, the broadest measure of money supply, expanded faster than the central bank's 18 percent targeted growth rate in each of the first 11 months of this year. China does not publish figures on how much it spends to maintain the currency peg, a central bank spokesman said.
Though Chinese officials including Central bank Governor Zhou Xiaochuan (
"It's very unlikely China would change its currency arrangement in 2004," said Mike Newton, a currency strategist in Hong Kong at HSBC Holdings Plc, the biggest trader of Chinese yuan, according to Euromoney magazine. "I can't see any upside for taking such a step" before China eases restrictions on the flow of capital.
China may allow the yuan to move 1 percent above and below the pegged rate, said Frank Gong, chief strategist at Bank of America Corp in Hong Kong, who used to work for the Federal Reserve writing research reports for the Federal Open Market Committee.
"They may widen the band, most likely in September, just before the US election," Gong said. Then, "US politicians can claim some kind of victory. That would be a politically right time to do it."
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
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)
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