china, revaluation call may be heeded next year

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    Wednesday, August 20, 2003

    Revaluation call may be heeded next year

    ALLEN T. CHENG in Beijing

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    Mainland leaders will resist international pressure to revalue the yuan for as long as possible but are likely to begin compromising as early as next year, according to a leading economist with Citic Ka Wah Bank in Hong Kong.
    Liao Qun, chief economic strategist with the mainland-linked bank and a former senior official with the State Economic Planning Commission in the early 1990s, said in a report this week that China might revalue as early as 2004 and possibly float the yuan by 2007 or 2008, in time for the Beijing Olympics.

    "International pressure to revalue will intensify and the government can't resist indefinitely - China will compromise with an incremental rise such as 5 per cent in 2004," predicted Mr Liao.

    "But after a while, if there is more pressure, it will revalue another 3 or 4 per cent but not more than that.

    "The Chinese government will compromise . . . small enough so it won't impact the economy and yet large enough to help [it] maintain good international relations."

    Floating the yuan was an eventual goal of the government, said Mr Liao, who spoke to senior policy planners before issuing his report, but the float must come at a time when China's economic restructuring was advanced enough to tolerate the potential volatility that a free float would bring.

    The first priority for the government is to fix state-owned enterprises so that they stop racking up non-performing loans (NPL), which will allow the government to further cut down the NPL ratio at state-run banks.

    "As long as there is progress on economic reforms, the government will gain confidence to float the Renminbi," said Mr Liao.

    "There is no set timetable, but many officials have had an idea of a float. In the past they said five years from now, but they keep on pushing it back. China may want to do it before the 2008 Olympics to show that China is really a member of the global community."

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