The US and the IMF welcomed China’s decision to widen the trading band on the nation’s currency, while analysts downplayed yesterday the likelihood of wide swings in the value of the yuan.
The People’s Bank of China, China’s central bank, announced on Saturday that it would allow the yuan to fluctuate by up to 1 percent on either side of its trading band when markets open today.
The yuan is currently allowed to trade 0.5 percent on either side of a midpoint price set by the central bank every trading day.
The new rules came as pressure for the yuan to appreciate has eased substantially after recent data showed the country’s trade has become more balanced, analysts said.
The decision also followed data released on Friday showing the world’s second-largest economy grew at its slowest pace in three years during the first quarter, a development that calls for further policy easing.
IMF Managing Director Christine Lagarde described the move on the yuan as an “important step.”
“This underlines China’s commitment to rebalance its economy toward domestic consumption and allow market forces to play a greater role in determining the level of the exchange rate,” Lagarde said in a statement.
Beijing’s trading partners have long criticized its yuan exchange rate, saying it is kept artificially low, fueling a flow of cheap exports that have helped trigger huge trade deficits between some countries and China.
The White House on Saturday reacted cautiously to the announcement, saying it would like to see “more movement.”
“They’ve made some progress, we’d like to see more movement. We noted this announcement. We’re reviewing it closely,” a top administration adviser, Ben Rhodes, told reporters on the sidelines of a regional summit in Colombia.
“It comes in the continuum of us wanting to see the Chinese take more of these steps to see their currency appreciate to come in line with the market value,” added Rhodes, the deputy national security adviser.
Chinese Prime Minister Wen Jiabao (溫家寶) acknowledged last month that the yuan had increased in value by about 30 percent since 2005 in comparison to the dollar.
The move to loosen the currency’s trading band could engender two-way volatility in the exchange rate, Bank of America-Merrill Lynch economist Lu Ting (陸挺) said. Lu said his bank expects the dollar-yuan exchange rate to be at 6.2 at the end of this year.
The yuan ended last week at 6.303 per US dollar, up about 8.3 percent since the scrapping in June 2010 of an almost two-year peg imposed during the global financial crisis. The currency has rallied 23 percent against the dollar in the past five years, the most among 25 emerging-market currencies tracked by Bloomberg.
The nation’s economy grew at a lower-than-expected 8.1 percent in the first quarter, compared with 8.9 percent in the fourth quarter of last year. Its trade surplus has also been shrinking in recent months, China recorded a US$5.35 billion trade surplus last month, reversing a US$31.48 billion deficit in February.
Tom Donohue, the head of the US Chamber of Commerce, said China’s decision to widen the yuan’s trading band may spur economic growth, boost the Asian country’s imports and strengthen the currency over time.
China’s move will “probably over the long-run help them in their economic growth even though there will be some competition involved,” Donohue said in an interview on Saturday on the sidelines of the CEO Summit of the Americas in Cartagena, Colombia. “It opens a lot of markets for them in both directions.”
“What we’ve been saying for four of five years is that the currency adjustment should be evolutionary, not revolutionary,” Donohue said. “We got one, and it’s great.”
Not all analysts share that view. Nobel laureate Joseph Stiglitz told reporters that the yuan may weaken as China takes steps to increase the ability of its investors to take money abroad.
“Opening up the band in conjunction with other actions they’ve taken may lead to a fall in the exchange rate rather than appreciation,” he said on Saturday in Berlin, where he’s attending an economics conference. “To the extent they do open up, money may leave and that will weaken their currency. A free market exchange rate may not go in the way the US thinks it should.”
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure