Mon, Jan 24, 2005 - Page 10 News List

Yuan revaluation bad for Taiwan

`TIME BOMB' An economic expert said that a sharp appreciation in the Chinese currency would have a deep and negative impact on growth and inflation


A widely expected revaluation of the Chinese currency will be a time bomb for Taiwan's economy, although it remains unknown exactly when the renminbi will go up in value, a noted economist said Friday.

Lee Kao-chao (李高朝), a former vice chairman and now an advisor to the Cabinet-level Council for Economic Planning and Development (CEPD) , said that a sharp yuan appreciation will have a profound negative impact on the nation's economic growth rate and consumer prices.

Despite the fact that nobody knows when and to what extent Chinese authorities will loosen the yuan's strict peg to the US dollar, the move will unavoidably hinder the domestic economy this year, he predicted.

According to the former CEPD vice chairman, elements that might affect Taiwan's economy this year include fluctuating international oil prices, a rising interest rate and China's measures to cool its high-flying economy.

Judging from the country's major economic indexes, domestic economic expansion will slow in the coming months, he said, adding that most forecasting agencies have set their growth rate estimates for the country from 4 percent to 4.6 percent for the whole of the year.

Regarding private sector investment, the machinery industry and real estate businesses will be most affected, he claimed.

The limitations on greenhouse gas emissions set by the Kyoto Protocol might dampen investment willingness in the machinery industry, while the property market is particularly sensitive to interest rates at a time when supply exceeds demand, he explained, noting that there were 130,000 houses built last year, outpacing the normal demand level of 100,000.

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