Beijing to let yuan rise about 3pc a year: Adviser

April 23 2007

BOAO (China): Beijing will probably continue to let the yuan rise only at a modest rate amid concern that a faster pace could hurt exporters and attract speculators, a top adviser to China's leadership said.

Justin Lin Yifu, a Taiwan-born economics professor at Peking University and one of China's most influential policy advisers, said that the yuan would probably only appreciate by about 3 percent a year against the dollar in the foreseeable future.

"The Chinese government's wording of 'keeping the yuan rate stable' means it will continue the existing pace of appreciation, which is about 3 per cent a year," Lin said in an interview.

Any faster pace than 3 per cent a year could push many exporters out of business, and a rate of 4 per cent was likely to stimulate speculation on the yuan, Lin said, citing the gap between US and Chinese interest rates.

Many of China's trade partners assert that the yuan is significantly undervalued, giving Chinese exporters an unfair advantage in global markets.

The yuan has risen by just 5.1 per cent against the dollar since the central bank revalued it by 2.1 per cent and decoupled it from a dollar peg in July 2005.

Lin said that even the frequent post-revaluation highs of the yuan on the onshore market were mainly the result of the central bank's plans to allow more two-way movement in its value - not a sign that it would let loose on the reins outright.

Still, that increased volatility was an important part of the central bank's aim of letting the yuan become more flexible, Lin said. - Reuters