Sat, Jun 11, 2005 - Page 9 News List

G7 to press China on yuan peg

Amid panic over a flood of cheap goods -- especially clothes and shoes -- the US and Europe have renewed their attack on Beijing's exchange rate policy

By Asheley Seager  /  THE GUARDIAN , LONDON

Janet Henry, senior global economist at HSBC, warns against great expectations of any move from the Chinese.

"Our assumption remains that the Chinese authorities will focus primarily on domestic financial reform, with only limited changes likely to the exchange rate regime in the coming months," she said.

The most plausible options for China would be either changing to a peg against a basket of currencies or allowing a "crawling" peg against the dollar -- whereby the exchange rate would be altered periodically and gradually.

With the economy already slowing, although still growing strongly, the Chinese authorities will be keen to avoid a large revaluation for fear of the impact of a drop in the competitiveness of the country's exports, Henry said.

The Chinese economy has been growing at an annual 10 percent or more for many years, sucking in raw materials from around the world and pushing up commodity prices to record levels. Gleaming new cities in places such as Shanghai have sprung up as a result of a construction boom.

Irritation is growing in the West about the surge in exports of Chinese textiles and shoes this year since the quota regimes were phased out.

Wednesday's figures from the European Commission showed imports of Chinese shoes into the EU in the first four months of the year were up 681 percent from the same period last year, to 161 million pairs.

The average price per pair was 2.4 euros (US$2.94), a tenth of the price of the average pair of shoes exported by Italy.

The EU is about to slap temporary emergency quotas on imports of Chinese T-shirts and flax yarn if China does not voluntarily rein in exports, something the Chinese agreed to when they joined the WTO in 2001.

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