An appreciation of the yuan will harm China-based Taiwanese exports companies in the short term, but the impact would be limited from a long-term perspective as their production structure could be adjusted, economists said yesterday.
“As Europe and the US still remain the major markets for Taiwanese businesspeople in China, a stronger yuan will be unfavorable to their export businesses,” Wu Chung-shu (吳中書), an economic research fellow at Academia Sinica, told a forum in Taipei.
The economist said that the appreciation of the Chinese currency would prompt prices of exports to rise and that demand from Western markets would therefore fall.
“But it still depends on whether China’s trade rivals, such as South Korea and Thailand, raise the value of their currencies. If their currencies appreciate, it would offset the effect of yuan hikes on China-based Taiwanese businesspeople,” he said.
Nevertheless, Wu said yuan hikes would instead give China-based Taiwanese manufacturers a chance to adjust their production structure and diversify their investment targets, including Southeast Asia.
Also at the forum, Thomas Lee (李桐豪), a professor of finance at National Chengchi University, said the adjustment of the production structure of China-bound Taiwanese businesses could enhance sustainable development of Taiwan’s economy in the long run.
Lee said that the yuan was undervalued by between 10 percent and 16 percent and that it is inevitable that the currency would appreciate eventually.
However, he noted that before global economic conditions clear up, the yuan would not see a sharp hike.
Meanwhile, Standard Chartered Bank (SCB) said yesterday that Chinese economic growth would decelerate in the second of this year and that the Chinese government would not likely raise its policy rates in the following two years.
“As the inflation problem in China had been resolved, the possibility of China raising interest rates is very low,” Stephen Green, head of Greater China research at SCB, told a media briefing.
Green said that China’s one-year base loan rate would likely remain “unchanged” at 5.31 percent between this year and 2012, adding that the Chinese government would adopt measures other than raising interest rates to control its economic growth.
“For example, China set a 7.5 trillion yuan [US$1.1 trillion] limit for the total new extension of loans by banks for this year in an attempt to cool down its overheating economy earlier last year,” he said.
SCB forecast that the Chinese economy would expand 10 percent for the full year, but revised downwards its China GDP growth prediction for next year to 8 percent from 9 percent because of slowing in real estate construction.
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