China is unlikely to move soon to float its currency despite foreign pressure, but needs to reform its domestic financial system to gain greater flexibility in the exchange rate, an OECD economist said Friday.
A move to float the dollar-pegged currency, the yuan, would require the Chinese authorities to substantially liberalize capital accounts and that cannot be done immediately, said the economist, who requested anonymity.
"I don't see a compelling case to float the currency" at the moment, he said.
His comments were at odds with renewed speculation of a near-term change in Chinese currency policy that surfaced Thursday at the elite World Economic Forum (WEF) in Davos, Switzerland.
"One thing the authorities almost certainly don't want to be in a position of is to change it now, or say in a year from now, and then a year after that to have to change it again. That's a very dangerous situation," he said. "I think that they'll have to be fairly convinced that there's a permanent change in the underlying fundamental value of the currency before they actually move. I think it's too early to tell about that."
A fixed exchange rate poses the problem of inflexibility, he said.
"The lesson, I think, from the current situation is that they need to undertake as quickly as possible reform to the domestic financial system that will allow them to then liberalize the capital account so that they have the option of having greater flexibility in the exchange rate," he said.
The economist, a China specialist at the Paris-based Organization for Economic Cooperation and Development, noted that China had accumulated a large balance of payments surplus because its domestic reserves banking system has been absorbing a lot of foreign exchange reserves.
But it has been able to cushion the impact of those forex reserves by essentially selling central bank bonds for the banks, he said.
"It's been able to sterilize the foreign exchange influence so far reasonably successfully," he said, but warned that a lot depended on whether the current currency flows persisted.
About a year ago, when the dollar was stronger, he recalled, China was being told its currency was overvalued. Now the situation has flipped, and the Chinese are being pressured to strengthen it.
Much of the heat is coming from US politicians who contend the yuan is undervalued, adding to a rising Chinese trade surplus and costing American jobs.
Despite repeated denials by the Chinese government that it plans to alter the yuan's peg to 8.3 to the US dollar, some at the Davos gathering of leading politicians and business executives sense that change is in the wind.
On Thursday, Victor Chu, chairman and chief executive of Hong Kong-based First Eastern Investment Group, told a WEF debate on foreign investment in China that the Chinese authorities could reassess the currency model by year's end.
Overseas investors should consider exposing themselves more to the Chinese currency, he said.
"We have a window of nine months. In the next nine months we want to really put money into new-producing assets in China," Chu said.
If the authorities decided on a different model, Chu said he believed they would move very quickly.
Hon Hai Precision Industry Co (鴻海精密) is reportedly making another pass at Nissan Motor Co, as the Japanese automaker's tie-up with Honda Motor Co falls apart. Nissan shares rose as much as 6 percent after Taiwan’s Central News Agency reported that Hon Hai chairman Young Liu (劉揚偉) instructed former Nissan executive Jun Seki to connect with French carmaker Renault SA, which holds about 36 percent of Nissan’s stock. Hon Hai, the Taiwanese iPhone-maker also known as Foxconn Technology Group (富士康科技集團), was exploring an investment or buyout of Nissan last year, but backed off in December after the Japanese carmaker penned a deal
SUPPORT: The government said it would help firms deal with supply disruptions, after Trump signed orders imposing tariffs of 25 percent on imports from Canada and Mexico The government pledged to help companies with operations in Mexico, such as iPhone assembler Hon Hai Precision Industry Co (鴻海精密), also known as Foxconn Technology Group (富士康科技集團), shift production lines and investment if needed to deal with higher US tariffs. The Ministry of Economic Affairs yesterday announced measures to help local firms cope with the US tariff increases on Canada, Mexico, China and other potential areas. The ministry said that it would establish an investment and trade service center in the US to help Taiwanese firms assess the investment environment in different US states, plan supply chain relocation strategies and
Three experts in the high technology industry have said that US President Donald Trump’s pledge to impose higher tariffs on Taiwanese semiconductors is part of an effort to force Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) to the negotiating table. In a speech to Republicans on Jan. 27, Trump said he intends to impose tariffs on Taiwan to bring chip production to the US. “The incentive is going to be they’re not going to want to pay a 25, 50 or even a 100 percent tax,” he said. Darson Chiu (邱達生), an economics professor at Taichung-based Tunghai University and director-general of
WASHINGTON POLICY: Tariffs of 10 percent or more and other new costs are tipped to hit shipments of small parcels, cutting export growth by 1.3 percentage points The decision by US President Donald Trump to ban Chinese companies from using a US tariff loophole would hit tens of billions of dollars of trade and reduce China’s economic growth this year, according to new estimates by economists at Nomura Holdings Inc. According to Nomura’s estimates, last year companies such as Shein (希音) and PDD Holdings Inc’s (拼多多控股) Temu shipped US$46 billion of small parcels to the US to take advantage of the rule that allows items with a declared value under US$800 to enter the US tariff-free. Tariffs of 10 percent or more and other new costs would slash such
RSS