Yuan appreciation could expand trade surplus - PBoC advisor |
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Sun, 21 Jan 2007 14:14
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BEIJING (XFN-ASIA) - Further yuan appreciation could cause China's trade surplus to grow rather than shrink, a leading central bank advisor said.Fan Gang, the only non-government representative on the monetary policy committee under the People's Bank of China, told a conference here Sunday that China should resist 'unilaterally appreciating the yuan under foreign pressure.''Most people would only emphasize the foreign exchange issue, saying that yuan appreciation might be the best way to reduce the trade surplus but appreciation might backfire and enlarge the surplus,' Fan, a Beijing-based economist, said.Fan noted that 57 pct of Chinese exports came from foreign-funded enterprises and argued that exporting manufacturers could increase production as a rising currency drives down costs for imported raw materials and parts.'If we keep appreciating the yuan, it's likely that the part which contributes to the trade surplus may grow bigger,' Fan said.Fan said that domestic labor costs aren't increasing in line with rising export prices and that the government's work focuses on domestic imbalances, such as a widening income gap.'Appreciation only increases export costs but not labor costs but if we directly lift labor costs, then we'll not only reduce the external trade surplus, but also curb internal imbalances,' he said.Fan said that labor prices should be determined by the market, but that the government can reform China's social security system and expand its coverage.The yuan has risen by around 6 pct since it was unshackled from its dollar peg in July 2005.beijing@marketnews.com
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