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Devaluing Yuan Will Boost Growth

Devaluing Yuan Will Boost GrowthDevaluing Yuan Will Boost Growth

China’s central bank has made the yuan Asia’s best-performing currency in the past year, rising in value against major currencies, in an effort to stem capital outflows and raise the Chinese currency’s appeal globally.

Now, at least one prominent government adviser is publicly making a case for devaluing the yuan to help bolster the country’s flagging growth, Xinhua reported.

In an analysis released early this week, Zhang Ming, a senior economist at the government think tank Chinese Academy of Social Sciences, said the yuan’s strength has “seriously deviated” from China’s economic fundamentals. “A devaluation by a proper amount,” he argued, would help revive China’s exports and growth. Zhang’s comments come as the Chinese leadership is struggling to reach its already-lowered growth target, set at 7% this year. A range of economic ills – from weak exports to an anemic property market and a heavy debt load – are weighing on the world’s second-largest economy.

To counter the slowdown, the government has beefed up infrastructure spending, relaxed rules on local-government borrowing and eased its monetary policy by, for example, cutting interest rates three times in the past seven months. But the People’s Bank of China so far has stuck to its guns when it comes to the exchange-rate policy and continued to push up the yuan against major currencies, including the US dollar.

The central bank didn’t respond to a request for comment. A deputy governor, Yi Gang, said at a forum in Beijing last Friday, “It’s not necessary” to bolster growth by devaluing the yuan. Yi pointed to China’s trade surplus, which has narrowed in recent years but remains relatively big, indicating Chinese exports are still strong. According to data by the Bank for International Settlements, the yuan has gained more than 3% against a basket of major currencies since the end of last year. It’s up 0.3% against the dollar so far this year, while most of its Asian peers lost ground to the greenback.

Financialtribune.com