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'RMB's rise should be controlled'

By Xu Binglan (China Daily)
Updated: 2007-03-05 09:10

China should combat speculation over therenminbi's appreciation by controlling the pace of the currency's rise in value, said Justin Lin Yifu, a well-known economist.

If the currency is allowed to appreciate, the exchange rate's annual change should be less than 3 percent, Lin, a member of the Chinese People's Political Consultative Conference (CPPCC) National Committee, told China Daily in an exclusive interview.

Chinese economist Justin Lin Yifu speaks to journalists upon arriving at the Great Hall of the People to attend the opening of the Chinese People's Political Consultative Conference in Beijing on Saturday, March 3, 2007. [CRIENGLISH.com]

"We should stick to the approach of ensuring adjustments (to the yuan's exchange rate) are small in scale and bearable," said Lin, a professor at Peking University.

The annual lending rate in the international market is about 5 percent, while the renminbi's annual interest rate for savings is 2 percent, so a 3 percent or bigger increase in the yuan's value would make speculative activities aimed at appreciation profitable, Lin said.

In July 2005, China abandoned the renminbi's decade-old peg to the US dollar and allowed its currency to appreciate by 2.1 percent. Since then, the yuan has gained almost another 5 percent against the dollar.

However, the United States blames its colossal trade deficit on what it claims is a seriously undervalued renmibi and has been pressing China to allow for a bigger revaluation.

Noises from the US, together with China's swelling trade surplus, have encouraged speculators to bet that the renminbi will appreciate at a quicker pace.

Lin said a major cause of the 70 percent annual increase in China's trade surplus last year was cheating traders who falsified the prices of the goods they traded, aiming to cash in on speculative profits from a rising renminbi.

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