China should not be forced to revalue its yuan or loosen its dollar peg because it would cause economic instability and threaten regional growth, a former Japanese vice finance minister warned yesterday.
Eisuke Sakakibara, dubbed "Mr. Yen" when he ran Japan's foreign exchange policy in the 1990s, said such a move could also open the door for speculative attacks on the Chinese unit.
"We should not pressure China to either revalue or widen the band for the [yuan]. I think that is wrong," he told a three-day East Asia congress here.
Despite growing affluence, Sakakibara said the Chinese economy still faced "lots of vulnerabilities" with a huge income and wealth disparities, and high non-performing loans estimated at around 25 percent of the total banking system.
China, therefore, needs a high growth rate of seven to eight percent for the next decade and a strong inflow of foreign investment to sustain its economy, he said.
"This is the only way to make China's economy viable and pressuring China to revalue will lead to a lowering of the rate of growth and cause foreign capital [inflows] to fall," he said.
"A weak and unstable China is a major threat to Asian countries. We should work together. We want a strong China, we want a strong Asia," Sakakibara said.
Asian countries must not perceive China as a threat but work closely with it to reap benefits from its vast market, he added.
Analysts estimate that the yuan, fixed at a rate of about 8.3 to the dollar, is undervalued by at least 15 percent or even more, sparking calls for it to be revalued.
US exporters have complained that the undervalued yuan makes their goods too expensive for Chinese markets and simultaneously makes Chinese exports unfairly cheap in US markets.
A bipartisan group of US senators called on the US to take "appropriate action," complaining that China deliberately kept the yuan undervalued to boost exports.
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