CHINA TOPIX

11/02/2024 09:35:09 am

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Beijing: 'We Will not Devalue Yuan'

No Devaluation

(Photo : Reuters) China's Vice President Li Yuanchao (above) has announced that the Chinese government does not intend to pursue the devaluation of the yuan.

The Chinese government has no plans to devalue the yuan, a high ranking Beijing official has said.

China's Vice President Li Yuanchao said last week Thursday that the Chinese government does not intend to pursue the devaluation of the nation's currency. 

"The fluctuations in the currency market are a result of market forces, and the Chinese government has no intention and no policy to devalue its currency," Li told Bloomberg News during the World Economic (WE) Forum held in Davos last week.

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Li made the statement even as Beijing faced mounting criticism over a widely held perception that the Chinese government has not been as forthcoming as it should be about its plans for the yuan's exchange rate. 

"China isn't communicating its policy intentions in a clear manner," observed Sue Trinh, head of Asia foreign exchange strategy at the Royal Bank of Canada in Hong Kong, earlier this month. "It's disappointing that their communication policy is less than transparent."

Record Lows

Officials at the US Federal Reserve and other financial institutions around the world have been struggling to decipher China's monetary exchange policies, which affects their own economic prospects.  The confusion has been a key cause of the recent turbulence in the global financial market, analysts have argued.

Chinese officials at the Davos talks are said to have had their hands full trying to allay the concerns of other participants in the conference over what has been described as Beijing's "often inscrutable" foreign exchange policies. 

The yuan has been dropping against the dollar since the beginning of the year, and has hit a series of record lows along its downward trajectory.  The decline has prompted some analysts to suggest that Chinese policymakers are manipulating the devaluation to buttress the country's falling exports.

Speaking at a panel discussion in Davos, Fang Xinghai, a senior economic adviser to the Chinese leadership, explained that Beijing is now committed to a new approach in which it would manage the yuan according to its performance against a basket of global currencies, as opposed to just pegging it against the US dollar.

"Communication Issue"

Beijing has for years sought stability by linking the yuan to the US dollar, allowing China to build foreign exchange reserves now valued at $4 trillion, according to the Wall Street Journal.  The link has lately become untenable as the dollar has appreciated, lifting the yuan and undermining China's efforts to boost declining domestic output.

Market analysts have meanwhile noted that -- while China's economy and monetary systems have taken on a global relevance -- the People's Bank of China (PBOC) does not hold press conferences or provide public testimony on its policies.  Fang's statement marked the first time a Chinese official had come forward to explain the most recent shift in China's exchange rate policy. 

The PBOC has shocked global financial markets twice over the past six months by allowing steep, sudden declines in the yuan, only to step in at the last moment to stabilize the currency and discourage speculation.

International Monetary Fund (IMF) managing director Christine Lagarde -- who was on the same panel as Fang -- said that, at this point in China's economic transition, communication with the rest of the world assumes an important function.

"Given the massive transition, there is a communication issue," said Lagarde. "Better communication certainly serves the transition."

Fang agreed.  "You're right, we should do a better job, and we're learning and doing it," he said. "I'm here to communicate."

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