The yuan will keep appreciating against the US dollar in the near future thanks to China’s steady economic expansion and inflationary pressures triggered by the US government’s continuing quantitative easing measures, economists said at a forum yesterday.
“In my opinion, a reasonable rate for the yuan to trade at is about 3 versus the greenback, compared with above 6 currently,” Fred Hu (胡祖六), economist and chairman at Primavera Capital Group (春華資本集團), told reporters following an economic forum on the outlook for the Greater China region.
Hu said China’s monetary policy usually reflects the country’s economic fundamentals.
“Although the slowing global economy may weaken demand for Chinese products, China’s domestic demand will still keep its economy expanding steadily,” he said.
Hu, former chairman of Goldman Sachs China, said he remained confident that China’s economy would not suffer a hard landing after the country reported strong 9.5 percent GDP growth in the second quarter.
Hu Sheng-cheng (胡勝正), a research fellow at Academia Sinica and a former chairman of the Council for Economic Planning and Development, said potential inflationary pressures in China would be another factor that leads to the yuan’s appreciation in the near future.
“After temporarily solving its national debt crisis, the US government may continue to adopt quantitative easing measures to boost its economy,” Hu Sheng-cheng said.
“That will again force China to face inflows of speculative capital, leaving the country with no other choice but to raise the yuan’s exchange rate to ease inflation,” Hu Sheng-cheng said.
The economic uncertainties in the US and eurozone, as well as tightening measures adopted by many emerging economies, are likely to cause expansion in the global economy to slow within a year, said Wu Chung-shu (吳中書), president of the Chung-hua Institution for Economic Research (中華經濟研究院).
However, both Wu and Hu Sheng-cheng said they did not think a double-dip global recession would happen any time soon, as governments around the world have learned how to implement tightening measures following the global financial tsunami between 2008 and 2009.
While seeking out safe-haven investments in the midst of economic uncertainties, Fred Hu said investors should not chase gold at this time after gold prices reached record levels recently.
“The current price of gold is definitely in a bubble,” he said, adding that the price would not last too long.
As for the latest news that the Bank of Korea has purchased more than US$1 billion in gold reserves, Fred Hu said: “The central banks are not always the smartest investors.”
Fred Hu said the purchase may not reap rewards, but he later added that the South Korean central bank’s strategy of diversifying capital was a reasonable one.