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» China-Business-Articles » Reading: "The Future Of The Deregulated Renminbi"
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| The Future Of The Deregulated Renminbi |
By:
Piset Wattanavitukul |
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RMB's Future - Up or down?
Here are two opposite views from two equally respected experts featured in a recent issue of Economic Outlook from Shanghai:
Yang Fang: There has been pressure to revalue the RMB upward since 1994 due to the continuous huge trade surpluses. In 1997, amid the waves of devaluations in Southeast Asia, the stable RMB actually has appreaciated 15% in the relative sense. At that time people were speculating a RMB devaluation which never happened. As the U.S. economy and stock market slowed down, especially since the 9/11 terrorist attacts, many Asian economies were shaken by worsening export and direct foreign investment prospects. A devaluation of the RMB will certainly pronounce a dead blow to many East Asian economies. As China enters the WTO, imports are expected to increase significantly along with an increase to a lesser degree of exports. If any trade deficit might surface, it would be more than compensated by the $600 to $1000 bilion USD expected in direct foreign investment. During recent years, the RMB has already relatively freely circulated in many neighboring countries in becoming an international currency, thus widening its demands and further stabilizing it. Thus, there is no reason to devalue the RMB in the immediate future. If the US dollar remains stable, the RMB will also remain stable. If the US Dollar depreciates, it will be tantamount to a revaluation of RMB upward.
Zhaong He: Kauffman of Princeton University contends that the Japanese government's attempt to rescue its economy by increasing government spending will prove to be insufficient. Only when the Japanese central bank cooperates with the Japanese government to allow the Japanese yen to devalue can the domestic tight money situation be corrected. Andy Xie, a Morgan Stanley economist sees the gravest threat to the Asian economic recovery to be a massive devaluation of the Japanese Yen. In Xie's memorandrum to his clients, he notes: "Since exports amounted to only 10.7 % of Japanese GDP, the need to resolve the domestic tight money condition has much higher priority. Thus, a new round of Japanese yen devaluation will be a massive one that will be followed by a series of devaluation of other Asian currencies. Under the circumstances, it would be difficult for RMB to remain unaffected. Most likely, it will depreciate."
My view is that a devaluation of the RMB is extremely unlikely. Exports accounting for 20% of China's GDP at this moment will become less and less significant to the Chinese economy. A stable RMB is of vital importance for China to assure its continued economic stability and growth. Any depreciation of the RMB will lead to domestic inflation and will caused political chaos. A weaker RMB will prove to be undesirable since it will increase the cost of capaital goods imports needed to upgrade state enterprises. Considering the Chinese policy to hold the RMB stable amid the 1997 Asian financial crisis, I would agree with Yang that there will be no depreciation of RMB in the next 5 years. If anything at all, it will revalue upward on account of its real perceived value and increased demands.
Piset Wattanavitukul, P.W. China Business Consultancy, Shanghai, People's Republic of China
http://www.apmforum.com/columns/chinapiset.htm
Piset is one of the Asia Pacific Management Forum's China columnists, providing on-the-ground tips, advice and commentary on doing business, marketing, and management in China. His colorful street level observations expressed in his unique local style have made him a indispensible monthly read to many. Piset is based in Shanghai, one of the world's most exciting cities.
http://www.apmforum.com/columns/chinapiset.htm |
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