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China may revise policy on yuan

China may revise policy on yuan
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First Published: Fri, Apr 09 2010. 12 37 AM IST
Updated: Fri, Apr 09 2010. 12 37 AM IST
Hong Kong/New Delhi: China is set to announce a revision of its currency policy in the coming days that will allow greater variation in the value of its currency, combined with a small, but immediate jump in its value against the dollar, people with knowledge of the consensus emerging in Beijing said Thursday.
While there remains a possibility of a last-minute glitch that could delay the announcement, China’s central bank appears to have prevailed in its arguments for a stronger, but more flexible currency, these people said. They insisted on anonymity because of the sensitivity of the issue.
Any such move may bring relief to India’s exporters coping with the rupee strengthening against the dollar.
“The fear of Indian companies being outpaced by their Chinese counterparts, both in the domestic and the international market, will be less now,” said chief statistician of India Pronab Sen. “Even if the rupee appreciates, Indian exporters will not lose their market share to their Chinese competitors.”
Sen said the impact of any revision in Chinese policy will depend on how the rupee performs against the dollar. “However, in a dollarized market, Indian exporters will be better off,” he said.
The move won’t be a solution to all ills, said Biswajit Dhar, director general of Research and Information System for Developing Countries.
“The currency manipulation by China is only part of the problem for India companies,” Dhar said. “China will try to neutralize this impact by further incentivizing their domestic industry and we should be very vigilant about that.”
China is India’s second largest trading partner with total trade at $41.8 billion (Rs1.9 trillion today) in 2008-09. India has previously expressed concern over the trade deficit of $23 billion with China.
“It is serious in the sense that we did use to have reasonably balanced trade with China till a few years back,” commerce secretary Rahul Khullar said in an interview on 13 February. “What we have told the Chinese is very simple. It is no longer possible for us to continue trading with such huge deficits and sit down doing nothing about it.”
The rupee strengthened 0.2% to 44.47 per dollar on Thursday, according to Bloomberg data. It had touched 44.32 on Wednesday day, the strongest level since 8 September 2008.
The model for the coming shift in currency policy is China’s move in 2005, when the leadership allowed the renminbi, also known as the yuan, to jump 2% against the dollar overnight and then to trade in a wider daily range, but with a trend towards further strengthening against the dollar. For the coming announcement, however, China is likely to emphasize that the value of the renminbi can fall as well as rise on any given day, so as to discourage a flood of speculative investment into China’s betting on rapid further appreciation, they said.
The emerging consensus within the Chinese leadership came as US treasury secretary, Timothy F. Geithner, held meetings on Thursday with senior officials in Hong Kong and then flew to Beijing for a meeting with vice-premier Wang Qishan of China.
The Chinese commerce ministry, which is very close to the country’s exporters, has strenuously and publicly opposed a rise in the value of the yuan.
Asit Ranjan Mishra is with Mint.
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First Published: Fri, Apr 09 2010. 12 37 AM IST
More Topics: China | Yuan | Policy | Dollar | Currency |