China’s Shrinking Trade Surplus May Ease Pressure for Yuan Appreciation
by on March 7, 2010
By Bloomberg News March 8 (Bloomberg) — Top Chinese officials said the nation’s trade surplus is shrinking and urged caution in exiting crisis policies, suggesting that the yuan may not appreciate soon against the dollar. The surplus slid 50.2 percent in January and February combined from a year earlier, Commerce Minister Chen Deming said at a press briefing in Beijing on March 6. “We must be very cautious about the timing of normalizing the policies, and this includes the renminbi rate policy,” central bank Governor Zhou Xiaochuan said, using another term for the Chinese currency. Premier Wen Jiabao last week pledged a moderately loose monetary stance and a “basically stable” yuan even after the world’s third-biggest economy expanded 10.7 percent in the fourth quarter. The central bank has kept the yuan at about 6.8 per dollar since July 2008, aiding exporters and fueling tensions with trading partners. “You’re not going to see huge, one-off steps on the currency,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. Officials will “look at incoming data every month and see what the rest of the global economy is doing.” The figure disclosed by Chen suggests that February’s trade surplus was about $8 billion, compared with about $14 billion in January and about $44 billion in the two months a year earlier. It’s too early to say that China’s exports have recovered, Chen said, after the nation reported increases in December and January shipments from a year earlier. One-Off Appreciation Su Ning , a deputy central bank governor, said separately March 6 that gradual, long-term gains by the yuan were in China’s interests and a one-off appreciation wouldn’t eliminate the nation’s trade surplus. Zhou’s caution against altering policy too quickly when a global recovery “isn’t solid” contrasts with traders becoming more bullish on the yuan, betting that export gains and climbing prices will overcome vows to maintain a dollar peg. The premium charged for the right to buy yuan in three months over contracts to sell has more than tripled this year to the most among 44 currency options tracked by Bloomberg. The 2 percentage point difference is the most since China last ended a fixed-exchange rate in July 2005, so-called risk-reversal rates show. The government is already winding back credit growth as it balances the threat from inflation against the risk that weak recoveries in the U.S. and Europe will cap export demand. ‘Sooner or Later’ The nation’s package of measures to respond to the global financial crisis included a 4 trillion yuan ($586 billion) stimulus package and the scrapping of quotas limiting bank lending. Zhou said that China is reforming its currency in the long term and current policies are short-term adjustments because of the crisis. China will exit its crisis stance “sooner or later,” the central banker said. Policies must stay flexible because it’s difficult to make accurate economic forecasts at the beginning of the year and balancing growth and inflation concerns is “complicated,” he said. He said that the International Monetary Fund is the key judge of currency policies and China has taken its views into account, adding that exchange-rate issues shouldn’t be politicized. In a statement before the briefing, the central bank said that it will promote a more diversified international currency system. That’s after Zhou last year urged moves to explore a new global currency to reduce reliance on the dollar. U.S. President Barack Obama said in a Feb. 9 interview with Bloomberg BusinessWeek that a stronger currency would help China to deal with “a bunch of bubbles” in its “potentially overheating” economy. IMF Managing Director Dominique Strauss-Kahn has repeatedly called the yuan “undervalued.”
by on March 7, 2010
By Bloomberg News March 8 (Bloomberg) — Top Chinese officials said the nation’s trade surplus is shrinking and urged caution in exiting crisis policies, suggesting that the yuan may not appreciate soon against the dollar. The surplus slid 50.2 percent in January and February combined from a year earlier, Commerce Minister Chen Deming said at a press briefing in Beijing on March 6. “We must be very cautious about the timing of normalizing the policies, and this includes the renminbi rate policy,” central bank Governor Zhou Xiaochuan said, using another term for the Chinese currency. Premier Wen Jiabao last week pledged a moderately loose monetary stance and a “basically stable” yuan even after the world’s third-biggest economy expanded 10.7 percent in the fourth quarter. The central bank has kept the yuan at about 6.8 per dollar since July 2008, aiding exporters and fueling tensions with trading partners. “You’re not going to see huge, one-off steps on the currency,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. Officials will “look at incoming data every month and see what the rest of the global economy is doing.” The figure disclosed by Chen suggests that February’s trade surplus was about $8 billion, compared with about $14 billion in January and about $44 billion in the two months a year earlier. It’s too early to say that China’s exports have recovered, Chen said, after the nation reported increases in December and January shipments from a year earlier. One-Off Appreciation Su Ning , a deputy central bank governor, said separately March 6 that gradual, long-term gains by the yuan were in China’s interests and a one-off appreciation wouldn’t eliminate the nation’s trade surplus. Zhou’s caution against altering policy too quickly when a global recovery “isn’t solid” contrasts with traders becoming more bullish on the yuan, betting that export gains and climbing prices will overcome vows to maintain a dollar peg. The premium charged for the right to buy yuan in three months over contracts to sell has more than tripled this year to the most among 44 currency options tracked by Bloomberg. The 2 percentage point difference is the most since China last ended a fixed-exchange rate in July 2005, so-called risk-reversal rates show. The government is already winding back credit growth as it balances the threat from inflation against the risk that weak recoveries in the U.S. and Europe will cap export demand. ‘Sooner or Later’ The nation’s package of measures to respond to the global financial crisis included a 4 trillion yuan ($586 billion) stimulus package and the scrapping of quotas limiting bank lending. Zhou said that China is reforming its currency in the long term and current policies are short-term adjustments because of the crisis. China will exit its crisis stance “sooner or later,” the central banker said. Policies must stay flexible because it’s difficult to make accurate economic forecasts at the beginning of the year and balancing growth and inflation concerns is “complicated,” he said. He said that the International Monetary Fund is the key judge of currency policies and China has taken its views into account, adding that exchange-rate issues shouldn’t be politicized. In a statement before the briefing, the central bank said that it will promote a more diversified international currency system. That’s after Zhou last year urged moves to explore a new global currency to reduce reliance on the dollar. U.S. President Barack Obama said in a Feb. 9 interview with Bloomberg BusinessWeek that a stronger currency would help China to deal with “a bunch of bubbles” in its “potentially overheating” economy. IMF Managing Director Dominique Strauss-Kahn has repeatedly called the yuan “undervalued.”