Sat, May 27, 2006 - Page 12 News List

Don't bank on soaring yuan, economist warns

By Lisa Wang  /  STAFF REPORTER

The Chinese yuan may dash the market's hopes by only appreciating mildly against the US dollar this year, as Beijing needs to keep the currency stable to boost industrial production and exports to digest excessive labor, according to an economist at the Hong Kong and Shanghai Banking Corp (HSBC), one of the largest banking and financial services organizations in the world.

Nonetheless, the gradual movement of the yuan would not be directly linked to the other major Asian currencies, as some investors had anticipated, the bank's Hong Kong-based chief economist Qu Hongbin (屈宏斌) told a press briefing yesterday.

"Asian [central banks] are watching the [movement of ] the renminbi ... To some extent, this makes sense," Qu said.

Most export-oriented economies in Asia fear they would start lagging behind China in terms of competition if their currencies were to appreciate while the yuan stayed unchanged against the US dollar, Qu said.

That has not happened, "and it is not happening now," he said.

"The Chinese authorities only said they will increase flexibility of the currency, but that does not mean [they] will let the renminbi rise all the way up," Qu said.

The biggest negative impact would be on those economies exporting similar goods and services to those being shipped by China, rather than on strong economies like Taiwan and South Korea, Qu said.

The yuan closed at 8.0261 per US dollar yesterday, according to the Web site of the China Foreign Exchange Trade System in Shanghai.

Qu reiterated his earlier forecast that the yuan would appreciate by no more than 2.12 percent to 7.85 yuan per US dollar by the end of the year amid growing anticipation of a stronger upward movement.

The yuan has appreciated a further 1.1 percent against the greenback since the Chinese currency was revalued by 2.1 percent against its US counterpart on July 21 last year, ending a long-term dollar peg to float within a managed band.

"The pressure for the renminbi to appreciate versus the US dollar is not as heavy as expected," Qu said, adding that the Chinese currency had not appreciated sharply following Chinese President Hu Jintao's (胡錦濤) recent US visit.

Qu said that his forecast about the yuan was based on the belief that Beijing would have to keep the Chinese currency competitive enough to lure foreign manufacturers there to absorb the country's labor surplus of 200 million people in rural areas.

As for other Asian currencies, Qu predicted that the New Taiwan dollar, the Singapore dollar and the Korean won would appreciate by 1.28 percent, 1.9 percent and 2.44 percent, respectively, by the end of this year.

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