The World Bank yesterday urged China to let its currency rise to contain inflation and stop the economy overheating, predicting that growth would gallop ahead at 9.5 percent this year.
“Strengthening the exchange rate can help reduce inflationary pressures and rebalance the economy,” the World Bank said in its latest quarterly update on the world’s third-largest economy.
China is facing growing international pressure, particularly from the US, to let the yuan appreciate. It has been effectively pegged to the dollar since the middle of 2008.
US senators on Tuesday introduced legislation that would impose tough new penalties on China if it failed to revalue its currency, which they say Beijing keeps artificially low to secure an unfair edge in trade.
The US action follows Chinese Premier Wen Jiabao’s (溫家寶) insistence at the weekend that Beijing would resist any foreign pressure for a stronger yuan, currently pegged within a narrow range at about 6.8 to the US dollar.
“Inflation expectations can be contained by a tighter monetary policy stance and a stronger exchange rate, while monetary policy also has a key role to play in containing risks of asset price bubbles,” the World Bank said.
The bank projected China’s GDP would surge 9.5 percent this year, markedly higher than the government’s own target of around 8 percent and last year’s growth rate of 8.7 percent.
Recovering demand for Chinese exports and robust real estate investment will be the key drivers of the economy this year as massive government-backed spending slows, it said.
While inflation risks remained modest, the bank said containing inflationary expectations, reining in property prices and keeping local government debt “manageable” were key tasks for policymakers.
In Washington, US Treasury Secretary Timothy Geitner said that the Senate bill calling for stiff trade sanctions if China does not act was a sign of how strongly China’s trading partners feel about the issue.
China, however, said yesterday that focusing on the yuan would not help solve problems in Sino-US bilateral trade relations.
“We oppose the over-emphasis on the yuan’s exchange rate,” a Chinese commerce ministry official said. “The yuan’s exchange rate is not a magic potion for solving global economic imbalances.”
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