Wed, June 23, 2010
Business > Economy > Hu visits Canada, attends G20 Summit

Currency is off limits at G20 summit

2010-06-19 08:37:43 GMT2010-06-19 16:37:43 (Beijing Time)  China Daily

BEIJING, June 19 (Xinhuanet) -- Discussions about the yuan-dollar exchange rate will not be on the agenda at the Group of 20 meeting in Canada next week, Chinese officials said on Friday.

Zhang Tao, director of the international department of the People's Bank of China, the nation's central bank, said at a press conference that Chinese leaders will not engage in talks about its currency with other world leaders at the summit.

"China is monitoring the domestic and international economic situations very closely in deciding its own policies, including those regarding the yuan exchange rate mechanism," he said.

The Chinese economy still faces multiple uncertainties, Zhang told reporters.

At the same time, Vice-finance Minister Zhu Guangyao urged countries attending next week's G20 summit in Toronto to take account of each other's concerns.

Beijing is under pressure from Washington to raise the yuan rate to help the United States reduce its large trade deficit with China, and Zhu's comments followed a new bout of China-bashing at a US House of Representatives hearing on Wednesday.

Commenting on Friday's official remarks, the Wall Street Journal website reported that "China appears increasingly unlikely" to move on its currency before the G20 summit - "a prospect that threatens to restart a poisonous cycle of increasing criticism from US lawmakers and increasing defensiveness from Beijing".

One of the factors that Chinese economists have frequently cited of late is that, in May, the growth in China's industrial output was 16.5 percent year-on-year, 1.3 percentage points lower than in April.

The World Bank also announced on Friday that it has revised its forecast of China's yearly GDP growth in 2011 from the previous 8.7 percent to 8.5 percent. It said that after a strong start in 2010, China's growth will inevitably begin to slow down as a result of its policy-level stimulus and of measures to cap property market prices, which were introduced in April.

The World Bank predicted China's yearly GDP growth could be 9.5 percent in 2010, before it falls to 8.5 percent and continues to be slow in the next decade (while still keeping a respectable rate), due mainly to decelerating contributions from labor and productivity, and relatively weak capital accumulation.

Louis Kuijs, a senior economist at the World Bank, told China Daily that there is room to move on the yuan exchange rate, preferably on the flexibility side.

But if China needs to tighten its monetary stance to contain key economic risks, moves on the domestic front, such as raising interest rates, would be more practical, he said.

To effectively control the risks related to property prices, local government debts and banks' non-performing loans, China should let interest rates play a larger role in monetary policy, said Kuijs.

Ardo Hansson, the World Bank's lead economist for China, argued that global and domestic substantial uncertainty calls for policy flexibility rather than continued stimulus by default.

However, views still remain divided on the yuan among Chinese economists, some of whom suggest China might have missed the best time to start yuan appreciation.

"Now we are facing rising challenges from the European debt crisis and a slow-down in economic growth," said Huang Yiping, an economist with Peking University, adding that the longer China waits to appreciate the yuan, the worse consequence it may bear in possible trade wars.

Lei Yanhua, a researcher with the Chinese Academy of International Trade and Economic Cooperation affiliated to the Ministry of Commerce, argued that appreciating the yuan would increase the living cost of American middle-class families and jeopardize the Chinese economy when it is in the middle of significant restructuring.

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