Yuan may hint at currency flexibility

London, March 26:

The recent volatility of the Chinese yuan may show that China is more open to pressure from the United States to further relax its foreign exchange regime, according to analysts.

China has been under fierce pressure to free up its forex system, particularly from the US, which argues that the yuan is made artificially weak and gives the Asian giant an unfair advantage in global trade.

“I think Beijing is going to be more willing to see the renminbi (yuan) rise and the increasing pressure from the US is one factor,” said Capital Economics currency analyst Julian Jessop.

Over the past week, democratic Senator Chuck Schumer and Republican colleague Lindsey Graham have sought to pressure China into revaluing its currency as they held talks in Beijing. The senators insist that the yuan is undervalued by as much as 40 per cent against the dollar, despite recent encouraging signs of flexibility, dealing a crippling blow to US companies trying to compete against Chinese rivals.

The yuan has risen by about three per cent against the dollar since July last year. That includes the effect of a 2.1 per cent revaluation on July 21 which was made under intense international pressure.

Meanwhile the dollar hit 8.0233 yuan last Monday — the highest point since July 2005. And the yuan saw a 0.33 per cent appreciation against the dollar in the week to March 17 — the fastest and largest weekly movement since July. But at the start of March, the yuan recorded its biggest weekly fall since the revaluation.

The yuan’s recent move higher was “consistent with China’s apparent policy of late of creating the impression that the yuan is market driven rather than politically controlled”, analysts at Dutch bank ABN Amro said. Following the July revaluation, the yuan’s peg to the dollar was removed and it was linked instead to a basket of currenci-es. The yuan was allowed to mo-ve 0.3 per cent either way aga-inst the dollar on a daily basis.

The exchange rate, the senators and other US critics argue, helped to drive up China’s trade surplus with the US to a record $201.6 billion last year.

China’s central bank, the People’s Bank of China, has meanwhile indicated that it might make its foreign exchange regi-me more flexible.

Greece faces Chinese puzzle

ATHENS: Eager to tap into China’s boundless market, Greece has joined a long list of European suitors courting trade contracts and travel deals with Beijing. But while Athens rolls out the red carpet for a steady stream of visiting Chinese dignitaries, it is torn between desire for this lucrative trade and fear it could op-en the door to illegal immigr-ation. In November, some 50 Chinese tourists were deta-ined at Athens International Airport. “This made a rather poor impression,” conceded a high-ranking official of the Hellenic Association of Tr-av-el and Tourist Agencies, “Fro-m the moment people acquire a visa, that should take care of everything but officials get overzealous.” — AFP