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Singapore’s Lee Says China Should Allow Stronger Yuan (Update1)
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By Shamim Adam
April 16 (Bloomberg) -- China should allow the yuan to strengthen to prevent its economy from overheating, Singapore Prime Minister Lee Hsien Loong said in an interview.
China’s peg to the U.S. dollar has caused “a lot of angst” even as it helped boost the nation’s exports “temporarily,” Lee, 58, said in an interview with the Charlie Rose television show on the PBS network.
“They shifted to a more conservative position over the last two years, and fixed to the U.S. dollar. But after a while, it causes overheating in the economy,” Lee said in the Washington interview. “In this situation, I think they really should revert to where they were before the crisis and allow the yuan to go up gently again.”
Criticism of the yuan policy from within Asia is rare even as the region’s export-dependent nations lose competitiveness as their exchange rates appreciate and China’s remains steady. Asian Development Bank President Haruhiko Kuroda last week said the yuan peg won’t have good implications for regional currencies and economies. “Most of Asia is facing appreciation pressures and some central banks have been intervening heavily to keep their economies competitive,” said Tomo Kinoshita, an economist at Nomura Holdings Inc. in Hong Kong. “If China loosens the peg, it allows Asian nations to let their currencies strengthen more as well.”
More Flexible
President Barack Obama, in an April 12 meeting with Chinese President Hu Jintao, conveyed the U.S. position that China’s currency should have a more market-based valuation. Federal Reserve Chairman Ben S. Bernanke this week said China undervalues the yuan to promote exports and a more flexible currency would help keep inflation under control.
“Many people have made the point to them and they have to make their own calculations and when they do it, they’ll do it for their own reasons,” Lee said.
Asia’s second-largest economy grew at the fastest pace in almost three years last quarter and property prices had a record increase in values in March, prompting the government yesterday to announce measures to cool the real-estate market. Economists surveyed by Bloomberg News predict China may allow the yuan to appreciate by June 30 to curb inflation while avoiding a one- time jump in value that might endanger export jobs.
Faster Growth
China said yesterday its economy expanded 11.9 percent last quarter from a year earlier. Consumer prices rose 2.4 percent in March from a year earlier, and statistics bureau spokesman Li Xiaochao said it may be difficult to cap inflation at the government’s 3 percent target for 2010.
Non-deliverable yuan forwards were little changed at 6.6241 per dollar as of 12:14 p.m. in Hong Kong today, suggesting the currency will gain about 3 percent in the next 12 months from its spot rate of 6.8259.
The yuan was revalued by 2.1 percent on July 21, 2005, after China ended the decade-long peg to the dollar and introduced a “managed float” against a basket of currencies.
The government has been reluctant to end the currency peg on concern about the durability of the recovery in the world economy. Central bank Governor Zhou Xiaochuan said in a March 23 interview that officials want to ensure the world isn’t going through a “W-shaped recovery,” with a renewed slowdown coming after the current rebound.
Investment Destination
“The position that they took before the crisis, to let the currency rise up gradually in a managed sort of way, was a right thing to do in their circumstances,” Lee said. “If they allow the currency to rise, it may raise their costs some but it will at the same time diminish some of the inflationary pressures within their country.”
Lee’s call for a stronger yuan comes as Singapore revalued its currency this week and said it will allow a modest and gradual appreciation in its dollar.
China is Singapore’s largest investment destination and the two countries have a free-trade agreement that came into force last year. The trade pact is the first “comprehensive” agreement that China has signed with an Asian nation, Singapore’s trade ministry said in a statement yesterday.
Singapore’s Minister Mentor Lee Kuan Yew, in a 2008 speech, said he has visited China almost every year since it opened up in 1978 and quoted Deng Xiaoping as saying “learn from the world and, especially Singapore, and do better than Singapore.”
To contact the reporter on this story: Shamim Adam in Singapore at [email protected]
Last Updated: April 16, 2010 00:33 EDT
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Shamim Adam
April 16 (Bloomberg) -- China should allow the yuan to strengthen to prevent its economy from overheating, Singapore Prime Minister Lee Hsien Loong said in an interview.
China’s peg to the U.S. dollar has caused “a lot of angst” even as it helped boost the nation’s exports “temporarily,” Lee, 58, said in an interview with the Charlie Rose television show on the PBS network.
“They shifted to a more conservative position over the last two years, and fixed to the U.S. dollar. But after a while, it causes overheating in the economy,” Lee said in the Washington interview. “In this situation, I think they really should revert to where they were before the crisis and allow the yuan to go up gently again.”
Criticism of the yuan policy from within Asia is rare even as the region’s export-dependent nations lose competitiveness as their exchange rates appreciate and China’s remains steady. Asian Development Bank President Haruhiko Kuroda last week said the yuan peg won’t have good implications for regional currencies and economies. “Most of Asia is facing appreciation pressures and some central banks have been intervening heavily to keep their economies competitive,” said Tomo Kinoshita, an economist at Nomura Holdings Inc. in Hong Kong. “If China loosens the peg, it allows Asian nations to let their currencies strengthen more as well.”
More Flexible
President Barack Obama, in an April 12 meeting with Chinese President Hu Jintao, conveyed the U.S. position that China’s currency should have a more market-based valuation. Federal Reserve Chairman Ben S. Bernanke this week said China undervalues the yuan to promote exports and a more flexible currency would help keep inflation under control.
“Many people have made the point to them and they have to make their own calculations and when they do it, they’ll do it for their own reasons,” Lee said.
Asia’s second-largest economy grew at the fastest pace in almost three years last quarter and property prices had a record increase in values in March, prompting the government yesterday to announce measures to cool the real-estate market. Economists surveyed by Bloomberg News predict China may allow the yuan to appreciate by June 30 to curb inflation while avoiding a one- time jump in value that might endanger export jobs.
Faster Growth
China said yesterday its economy expanded 11.9 percent last quarter from a year earlier. Consumer prices rose 2.4 percent in March from a year earlier, and statistics bureau spokesman Li Xiaochao said it may be difficult to cap inflation at the government’s 3 percent target for 2010.
Non-deliverable yuan forwards were little changed at 6.6241 per dollar as of 12:14 p.m. in Hong Kong today, suggesting the currency will gain about 3 percent in the next 12 months from its spot rate of 6.8259.
The yuan was revalued by 2.1 percent on July 21, 2005, after China ended the decade-long peg to the dollar and introduced a “managed float” against a basket of currencies.
The government has been reluctant to end the currency peg on concern about the durability of the recovery in the world economy. Central bank Governor Zhou Xiaochuan said in a March 23 interview that officials want to ensure the world isn’t going through a “W-shaped recovery,” with a renewed slowdown coming after the current rebound.
Investment Destination
“The position that they took before the crisis, to let the currency rise up gradually in a managed sort of way, was a right thing to do in their circumstances,” Lee said. “If they allow the currency to rise, it may raise their costs some but it will at the same time diminish some of the inflationary pressures within their country.”
Lee’s call for a stronger yuan comes as Singapore revalued its currency this week and said it will allow a modest and gradual appreciation in its dollar.
China is Singapore’s largest investment destination and the two countries have a free-trade agreement that came into force last year. The trade pact is the first “comprehensive” agreement that China has signed with an Asian nation, Singapore’s trade ministry said in a statement yesterday.
Singapore’s Minister Mentor Lee Kuan Yew, in a 2008 speech, said he has visited China almost every year since it opened up in 1978 and quoted Deng Xiaoping as saying “learn from the world and, especially Singapore, and do better than Singapore.”
To contact the reporter on this story: Shamim Adam in Singapore at [email protected]
Last Updated: April 16, 2010 00:33 EDT
