China faces risks from inflation and a possible boom and bust in real-estate prices, and it should allow its tightly controlled currency to rise to promote economic stability, the IMF said yesterday.
In an annual review, the IMF recommended changes it said would raise China’s living standards and promote a transition to more sustainable growth with less reliance on exports and investment.
It said Beijing should allow interest rates to be set by the market and ease controls on investment flows into China.
China’s main domestic risks are higher inflation, a bubble in real-estate prices or a decline in credit quality because of the upsurge in lending as part of Beijing’s response to the global crisis, the report said.
A stronger yuan is “a key ingredient to accelerate the transformation of China’s economic growth model,” it said.
China’s inflation rose to a three-year high of 6.4 percent last month, driven by a 14.4 percent jump in food costs. A stronger yuan might help to cool prices by making oil, food and other imports cheaper in local currency terms.
The Washington-based IMF said the yuan is undervalued by 3 to 23 percent — depending on which method is used to measure the gap — and currency controls are holding back reforms that could make its state-dominated financial system more flexible and efficient.
The report could provide ammunition to critics in Washington and elsewhere who say an undervalued yuan gives China’s exporters an unfair advantage, swelling its trade surplus and hurting efforts to create jobs after the global crisis.
China’s central bank controls the yuan’s exchange rate by purchasing most of the US dollars and other foreign currency that flow into the country and then stockpiling them in US Treasury securities and other foreign -currency-denominated assets.
In April, the IMF cited Beijing’s currency controls as a possible factor that might hamper a global recovery. Some US lawmakers say they want punitive tariffs on Chinese goods if Beijing fails to ease its exchange rate controls.
China’s central bank and some other regulators have recommended easing controls on the yuan. However, they face opposition from factions that worry a stronger yuan could hurt exporters and cost jobs, possibly fueling unrest.
Beijing’s member of the IMF board disagreed with its conclusions on the currency and money flows.
In a statement attached to the report, He Jianxiong (何建雄) said the yuan has risen in value by 21 percent since mid-2005. He said Beijing’s US$3 trillion in foreign reserves have swelled because unusually low interest rates in the US and Europe sent capital flooding into developing economies.
FREEDOM OF NAVIGATION: The UK would continue to reinforce ties with Taiwan ‘in a wide range of areas’ as a part of a ‘strong unofficial relationship,’ a paper said The UK plans to conduct more freedom of navigation operations in the Taiwan Strait and the South China Sea, British Secretary of State for Foreign, Commonwealth and Development Affairs David Lammy told the British House of Commons on Tuesday. British Member of Parliament Desmond Swayne said that the Royal Navy’s HMS Spey had passed through the Taiwan Strait “in pursuit of vital international freedom of navigation in the South China Sea.” Swayne asked Lammy whether he agreed that it was “proper and lawful” to do so, and if the UK would continue to carry out similar operations. Lammy replied “yes” to both questions. The
Two US House of Representatives committees yesterday condemned China’s attempt to orchestrate a crash involving Vice President Hsiao Bi-khim’s (蕭美琴) car when she visited the Czech Republic last year as vice president-elect. Czech local media in March last year reported that a Chinese diplomat had run a red light while following Hsiao’s car from the airport, and Czech intelligence last week told local media that Chinese diplomats and agents had also planned to stage a demonstrative car collision. Hsiao on Saturday shared a Reuters news report on the incident through her account on social media platform X and wrote: “I
SHIFT PRIORITIES: The US should first help Taiwan respond to actions China is already taking, instead of focusing too heavily on deterring a large-scale invasion, an expert said US Air Force leaders on Thursday voiced concerns about the Chinese People’s Liberation Army’s (PLA) missile capabilities and its development of a “kill web,” and said that the US Department of Defense’s budget request for next year prioritizes bolstering defenses in the Indo-Pacific region due to the increasing threat posed by China. US experts said that a full-scale Chinese invasion of Taiwan is risky and unlikely, with Beijing more likely to pursue coercive tactics such as political warfare or blockades to achieve its goals. Senior air force and US Space Force leaders, including US Secretary of the Air Force Troy Meink and
Czech officials have confirmed that Chinese agents surveilled Vice President Hsiao Bi-khim (蕭美琴) during her visit to Prague in March 2024 and planned a collision with her car as part of an “unprecedented” provocation by Beijing in Europe. Czech Military Intelligence learned that their Chinese counterparts attempted to create conditions to carry out a demonstrative incident involving Hsiao, which “did not go beyond the preparation stage,” agency director Petr Bartovsky told Czech Radio in a report yesterday. In addition, a Chinese diplomat ran a red light to maintain surveillance of the Taiwanese
RSS