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.”
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
ARTIFICIAL INTELLIGENCE: The chipmaker last month raised its capital spending by 28 percent for this year to NT$32 billion from a previous estimate of NT$25 billion Contract chipmaker Powerchip Semiconductor Manufacturing Corp (力積電子) yesterday launched a new 12-inch fab, tapping into advanced chip-on-wafer-on-substrate (CoWoS) packaging technology to support rising demand for artificial intelligence (AI) devices. Powerchip is to offer interposers, one of three parts in CoWoS packaging technology, with shipments scheduled for the second half of this year, Powerchip chairman Frank Huang (黃崇仁) told reporters on the sidelines of a fab inauguration ceremony in the Tongluo Science Park (銅鑼科學園區) in Miaoli County yesterday. “We are working with customers to supply CoWoS-related business, utilizing part of this new fab’s capacity,” Huang said, adding that Powerchip intended to bridge
Qualcomm Inc, the world’s biggest seller of smartphone processors, gave an upbeat forecast for sales and profit in the current period, suggesting demand for handsets is increasing after a two-year slump. Revenue in the three months ended in June will be US$8.8 billion to US$9.6 billion, the company said in a statement Wednesday. Excluding certain items, earnings will be US$2.15 to US$2.35 a share. Analysts had projected sales of US$9.08 billion and earnings of US$2.16 a share. The outlook signals that the smartphone market has begun to bounce back, tracking with Qualcomm’s forecast that demand would gradually recover this year. The San
Clambering hand-over-hand, sweat dripping into his eyes, a durian laborer expertly slices a cumbersome fruit from a tree before tossing it down to land with a soft thump in his colleague’s waiting arms about 15m below. Among Thailand’s most famous and lucrative exports, the pungent “king of fruits” is as distinctive in its smell as its spiky green-brown carapace, and has been farmed in the kingdom for hundreds of years. However, a vicious heat wave engulfing Southeast Asia has resulted in smaller yields and spiraling costs, with growers and sellers increasingly panicked as global warming damages the industry. “This year is a crisis,”