Published March 19, 2010
Stress tests to gauge impact of yuan appreciation
Sign that China may be preparing for policy change; results on April 27
(BEIJING) China is conducting stress tests to gauge the effect of yuan appreciation on companies, a sign that the government may be preparing for policy change even as it rebuffs foreign criticism of its 20-month US dollar peg.
Counting the cost: China has kept the yuan little changed at around 6.83 per US dollar since July 2008
The China Council for the Promotion of International Trade is conducting yuan tests at more than 1,000 companies in 12 industries, vice-chairman Zhang Wei told a press briefing in Beijing yesterday.
He said that policy makers should delay the resumption in gains to give exporters more time to recover from the global recession. The yuan's 12-month forwards climbed 0.1 per cent to 6.6642 per US dollar.
Foreign pressure has intensified since Premier Wen Jiabao said over the weekend that the yuan isn't undervalued and said that criticism of China's policy amounted to 'protectionism'.
Forward contracts reflect bets that the yuan will strengthen 2.4 per cent from the spot rate of 6.8265 in the coming year as the central bank seeks to curb the cost of import prices and rein in inflation.
'This could be a sign they are looking into the option of renminbi appreciation,' said Liu Ligang, an economist at Australia & New Zealand Banking Group Ltd. 'Whether this will indicate an imminent appreciation is not yet certain.'
China has kept the yuan little changed at around 6.83 per US dollar since July 2008 to help exporters survive the global financial crisis. The central bank allowed the currency, also known as the renminbi, to strengthen 21 per cent since a peg against the dollar was scrapped in July 2005.
Mr Liu expects yuan will start rising as early as the second quarter, and it may gain as much as 5 per cent by year-end.
Electronics and machinery industries are the most affected because they have signed US$150 billion in export orders this year, which may lose value in yuan terms, he said. Processing manufacturers, such as textiles and furniture makers, which have profit margins as low as 3 per cent, would 'immediately face bankruptcies', according to Mr Zhang.
'Even if the yuan has a slight appreciation, they'll be dead.'
The results of the tests will be announced before April 27, said Mr Zhang.
China's foreign ministry spokesman Qin Gang said yesterday that the yuan's value is 'not the main cause' of the US trade deficit, hours after Jon Huntsman, US Ambassador to China, said that the Obama administration hopes 'to see more flexibility' in the way the yuan is managed.
US senators including Charles Schumer and Lindsey Graham revived legislation this week that would require the US to determine if a nation's currency is misaligned and would make it easier to impose import duties if the currency was deemed to be undervalued.
Meanwhile, Susan Schwab, a former United States Trade Representative warned that China and the US may damage their own economies as a result of rising protectionism.
'There has been a tangible uptick in the scope of tensions,' Ms Schwab said during a speech to members of the American Chamber of Commerce in Hong Kong.
'Both China and the US are at much greater risk of self-inflicted wounds than any damage of what the other country could do.'
Ms Schwab said that China's censorship of Internet companies such as Google and its unwillingness to allow its currency to appreciate are causing unprecedented concern in the US. She joined law firm Mayer Brown LLP in Washington as an adviser earlier this month.
'Holding down the renminbi risks inflation in China and has caused a lot of trading partners to be very unhappy,' she said.
She called Washington's buy-American polices 'stupid and self-defeating'.
Ms Schwab, who joins a chorus of former and current officials calling for Chinese officials to allow the yuan to strengthen, said that she expects it to gradually appreciate against the US dollar. -- Bloomberg
Stress tests to gauge impact of yuan appreciation
Sign that China may be preparing for policy change; results on April 27
(BEIJING) China is conducting stress tests to gauge the effect of yuan appreciation on companies, a sign that the government may be preparing for policy change even as it rebuffs foreign criticism of its 20-month US dollar peg.
Counting the cost: China has kept the yuan little changed at around 6.83 per US dollar since July 2008
The China Council for the Promotion of International Trade is conducting yuan tests at more than 1,000 companies in 12 industries, vice-chairman Zhang Wei told a press briefing in Beijing yesterday.
He said that policy makers should delay the resumption in gains to give exporters more time to recover from the global recession. The yuan's 12-month forwards climbed 0.1 per cent to 6.6642 per US dollar.
Foreign pressure has intensified since Premier Wen Jiabao said over the weekend that the yuan isn't undervalued and said that criticism of China's policy amounted to 'protectionism'.
Forward contracts reflect bets that the yuan will strengthen 2.4 per cent from the spot rate of 6.8265 in the coming year as the central bank seeks to curb the cost of import prices and rein in inflation.
'This could be a sign they are looking into the option of renminbi appreciation,' said Liu Ligang, an economist at Australia & New Zealand Banking Group Ltd. 'Whether this will indicate an imminent appreciation is not yet certain.'
China has kept the yuan little changed at around 6.83 per US dollar since July 2008 to help exporters survive the global financial crisis. The central bank allowed the currency, also known as the renminbi, to strengthen 21 per cent since a peg against the dollar was scrapped in July 2005.
Mr Liu expects yuan will start rising as early as the second quarter, and it may gain as much as 5 per cent by year-end.
Electronics and machinery industries are the most affected because they have signed US$150 billion in export orders this year, which may lose value in yuan terms, he said. Processing manufacturers, such as textiles and furniture makers, which have profit margins as low as 3 per cent, would 'immediately face bankruptcies', according to Mr Zhang.
'Even if the yuan has a slight appreciation, they'll be dead.'
The results of the tests will be announced before April 27, said Mr Zhang.
China's foreign ministry spokesman Qin Gang said yesterday that the yuan's value is 'not the main cause' of the US trade deficit, hours after Jon Huntsman, US Ambassador to China, said that the Obama administration hopes 'to see more flexibility' in the way the yuan is managed.
US senators including Charles Schumer and Lindsey Graham revived legislation this week that would require the US to determine if a nation's currency is misaligned and would make it easier to impose import duties if the currency was deemed to be undervalued.
Meanwhile, Susan Schwab, a former United States Trade Representative warned that China and the US may damage their own economies as a result of rising protectionism.
'There has been a tangible uptick in the scope of tensions,' Ms Schwab said during a speech to members of the American Chamber of Commerce in Hong Kong.
'Both China and the US are at much greater risk of self-inflicted wounds than any damage of what the other country could do.'
Ms Schwab said that China's censorship of Internet companies such as Google and its unwillingness to allow its currency to appreciate are causing unprecedented concern in the US. She joined law firm Mayer Brown LLP in Washington as an adviser earlier this month.
'Holding down the renminbi risks inflation in China and has caused a lot of trading partners to be very unhappy,' she said.
She called Washington's buy-American polices 'stupid and self-defeating'.
Ms Schwab, who joins a chorus of former and current officials calling for Chinese officials to allow the yuan to strengthen, said that she expects it to gradually appreciate against the US dollar. -- Bloomberg