- DAVOS, Switzerland (AP) --
China has lost faith in the stability of the U.S. dollar and its first
priority is to broaden the exchange rate for its currency from the dollar
to a more flexible basket of currencies, a top Chinese economist said Wednesday
at the World Economic Forum.
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- At a standing-room only session focusing on the world's
fastest-growing economy, Fan Gang, director of the National Economic Research
Institute at the China Reform Foundation, said the issue for China isn't
whether to devalue the yuan but "to limit it from the U.S. dollar."
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- But he stressed that the Chinese government is under
no pressure to revalue its currency.
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- China's exchange rate policies restrict the value of
the yuan to a narrow band around 8.28 yuan, pegged to $1. Critics argue
that the yuan is undervalued, making China's exports cheaper overseas and
giving its manufacturers an unfair advantage. Beijing has been under pressure
from its trading partners, especially the United States, to relax controls
on its currency.
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- "The U.S. dollar is no longer -- in our opinion
is no longer -- (seen) as a stable currency, and is devaluating all the
time, and that's putting troubles all the time," Fan said, speaking
in English.
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- "So the real issue is how to change the regime from
a U.S. dollar pegging ... to a more manageable ... reference ... say Euros,
yen, dollars -- those kind of more diversified systems," he said.
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- "If you do this, in the beginning you have some
kind of initial shock," Fan said. "You have to deal with some
devaluation pressures."
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- The dollar hit a new low in December against the euro
and has been falling against other major currencies on concerns about the
ever-growing U.S. trade and budget deficits.
-
- The U.S. currency came under some pressure Wednesday,
drifting lower versus most currencies including the Japanese yen and the
euro, as dealers mulled the Chinese official's statements.
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- Fan said last year China lost a good opportunity to do
revalue its currency, in July and October.
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- "High pressure, we don't do it. When the pressure's
gone, we forgot," Fan said, to laughter from the audience. "But
this time, I think Chinese authorities will not forget it. Now people understand
the U.S. dollar will not stop devaluating."
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- Asked how speculation about revaluation could be curbed,
he noted that China imposed a 3 percent tariff on Chinese exports.
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- Some Chinese experts say that perhaps inflation can be
reduced this year, "but I'm not that optimistic," Fan said, noting
that fuel prices keep rising.
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- "So maybe China (will) have 4-5 percent inflation
in 2005," he said.
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- Fan, whose nonprofit institute specializes in analyzing
the Chinese economy, stressed that the country's development is a long-term
process that will take decades, maybe a century.
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- Since China's economic modernization began over a decade
ago, 120 million rural laborers have moved into cities, but another 200
million or 300 million people need to move into the cities from the countryside
to spur development, he said.
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- "The income disparity is huge, and income disparity
will stay with us for a long time, as long as those 200 to 300 million
rural laborers stay in the countryside," Fan said.
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- Nonetheless, William Parrett, chief executive of Deloitte
Touche Tohmatsu, told the panel that Chinese companies are making significant
progress in becoming global giants, led by state-owned companies.
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- "It's probably at least 10 years before the objective
of the government of 50 of the largest 500 companies in the world being
Chinese" is achieved, he said.
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