An influential Chinese government think tank has urged policymakers to adopt a more flexible exchange rate and predicted the growth in the world’s No. 3 economy would slow in the second quarter.
China should widen the yuan trading band to reduce international pressure for a stronger currency and curb the inflow of speculative money, the State Information Center said, the China Securities Journal reported yesterday.
“There are expectations for the yuan to appreciate. [We] should broaden the trading band before more hot money flows into China and leads to a serious situation that cannot be turned around,” the center said.
The report comes after US Trade Representative Ron Kirk on Thursday nudged China to adjust the value of its currency, saying the move would help both nations in an interlinked global economy.
Beijing has effectively pegged the yuan to about 6.8 to the US dollar since mid-2008 to support exporters during the global financial crisis. The currency has been allowed to move within a 0.5 percent range on either side of the peg.
In 2005, China made its currency slightly more flexible and allowed the yuan to appreciate about 20 percent against the US dollar until July 2008.
The US and the EU have long said that the yuan is too weak, which has led to a flood of cheap exports from the world’s largest developing economy.
Kirk said that China, which has accumulated billions of dollars of ballooning US debt, would benefit by letting the US save and sell more.
“That’s how the president sees it — not just trying to dictate to China what they should or should not do, but step back and take a more global look at their overall economic policy,” Kirk said.
“Within that, certainly we think we would all be well served if the policy would provide to float to a better level,” he told a forum.
The State Information Center also forecast the economy would grow by 10.7 percent year-on-year in the second quarter, suggesting a rash of recent tightening measures might be bearing fruit.
The Chinese economy grew a blistering 11.9 percent in the first three months of the year, fueling fears it was at risk of overheating.
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