China’s trade surplus could disappear within two years as domestic demand rises, making the yuan rate less of an issue, an adviser to the nation’s central bank said.
“In one to two years, our trade surplus will be zero,” Li Daokui (李稻葵), said in an interview in Beijing yesterday.
“It’s possible for the renminbi to face depreciation pressure. If that time comes, let the market decide its fluctuation,” he said, referring to the Chinese currency.
Policymakers in the world’s -second-largest economy have pledged to adjust the nation’s growth toward domestic demand and narrow its external surplus to help address lopsided flows of trade and investment that contributed to the global financial crisis of 2008.
Unbalanced trade flows have triggered calls from the US and other G20 nations for China to allow its currency to trade more flexibly.
US President Barack Obama said on Sunday that “enough’s enough” on what the US views as the too-slow strengthening of the yuan, saying that Chinese exporters “like the system the way it is.”
However, exchange rates have become a “much smaller” issue over the years, Li said at a forum yesterday. China’s trade surplus could account for less than 1.6 percent of GDP this year, he said.
“The marketplace will eventually provide a good answer to all these political pressures,” Li said. “I often call upon my countrymen not to be irritated, not to become angry at the international pressure for exchange rate appreciation. That’s daily politics.”
The yuan fell 0.16 percent to 6.3528 per US dollar yesterday. China’s currency has appreciated 2.3 percent against the dollar over the past six months, according to Bloomberg data.
Standard Chartered scaled back its projections for the yuan against the dollar this week, predicting the currency would appreciate 0.6 percent each quarter in the first half of next year, lower than the 1 percent quarterly advance the company previously expected.
China’s inflation rate has dropped from a three-year high of 6.5 percent in July to 5.5 percent last month, government data show. The economy expanded 9.1 percent in the third quarter, the slowest quarterly rate since 2009, amid the government’s campaign to cool consumer and property prices.
“Inflation will likely ease to 2.8 percent next year,” Li said. That could help deposit rates rise above the inflation rate, in line with the central bank’s goal, he said.
China would probably invest in public works projects if there is a risk of growth falling below 6 percent, Li said. China’s economy will grow 9 percent next year, according to an IMF projection in September.
The People’s Bank of China this week said it could not loosen price controls, reiterating Chinese Premier Wen Jiabao’s (溫家寶) pledge to “fine-tune” policies when needed.
While inflation continues to moderate, “the foundation for price stability is not yet solid,” the bank said in a monetary policy report.
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