No hurry for change of China yuan rate


Updated Fri, 22 Apr 2005 00:00:00 GMT

China should not revamp its exchange rate regime before the conditions are ripe, a senior World Bank economist said yesterday.

    If Chinese policymakers want to refocus the renminbi's exchange rate system, they should strive to build a more flexible one instead of simply revaluing the currency, said Hans Timmer, a senior economist at the bank. There is no hurry there," he said, adding that when conditions are ripe, "you have the opportunity to do that."

    China is under pressure from some major trading partners to revalue its currency, which they claim is undervalued and has been giving Chinese exports an unfair advantage. The Chinese Government has insisted it will not resort to any simplistic revaluation of the currency but pledged instead to gradually improve the exchange rate forming mechanism.

    While the renminbi faces upward pressure, it is not because it is undervalued, but mainly because of hefty capital inflows, Timmer said. "We don't see any obvious signs, from the trade perspective, that the currency is either significantly overvalued, or undervalued."

    Timmer made these remarks as the bank launched its annual Global Development Finance 2005 report simultaneously in Beijing and Paris.

    According to the report, China accounted for 88 per cent of foreign direct investment in the East Asia and Pacific region last year, which stood at US$63.6 billion, up from a low of US$49.9 billion in 1999. The country accounted for 78 per cent of portfolio equity inflows to the region last year, up from 65 per cent in the previous year, and accounted for 90 per cent of the foreign exchange reserve increases recorded in the region, which came in at US$230 billion.

    The report, entitled Mobilizing Finance and Managing Vulnerability, finds that although growth in developing countries remains robust, it is becoming more sustainable. But it points out that global imbalances remain a serious risk factor, and that slow growth and higher interest rates could jeopardize the finances of developing countries.

    China's fixed asset investment grew 24.5 per cent year-on-year during the first two months of 2005.

    This was still a fast rate, although it was on the way to a soft landing, he said