(Xinhua)
Updated: 2007-07-25 14:15

The country would face great risks with a strong yuan in the long run if it failed to improve the quality of its economy to support the currency by then, Tan warned, urging the government to be alert and take precautions against the risks.

She was worried the stronger yuan would cut or even wipe off the profits of China's labor-intensive manufacturing sector, while the foreign investors would snatch fat profits on the back of low-cost labor in China and become a dominant factor in the Chinese economy.

Ha Jimin, chief economist with China International Capital Corporation, argued accelerating yuan appreciation may help ease trade frictions, lower the pressure from imported inflation, and urge exporting companies to upgrade its industrial structure.

Professor Ding Zhijie with the University of International Business and Economics warned the persistent anticipation might lead China to the trap of attracting more liquidity for its relatively low interest rates.

He noticed that market anticipation of yuan appreciation persisted, though the currency kept going upward and the exchange rate formation mechanism became more market-oriented.

Ding said the Chinese government should try not to follow Japan in the 80s, which failed to correct the appreciation anticipation and fell victim to bubble bursts in the real estate sector and the stock market.

Both Ding and Ha said the pressure of appreciation would continue due to the country's high growth rate and accumulating forex reserves, and predicted the value of the Chinese currency would rise to 7.3 yuan to one US dollar at the end of the year if the dollar maintained its performance.

Ha said it would at least take three years to ease the pressure for further appreciation of the yuan.

The Chinese government should do more research to identify the real value of yuan and the equilibrium price of the yuan in order to avoid risks from the yuan appreciation in a single direction, Tan said.

Fan Gang, a member of the central bank's Monetary Policy Committee, however, was against deliberately bringing down the anticipation of the yuan appreciation, and said the yuan's revaluation should keep to the mechanism of market supply and demand.

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