Yuan hits record high amid calls
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The yuan hit a new high on Tuesday amid fresh US calls for a faster currency appreciation, but economists said China should brush aside foreign pressure and decide the pace of exchange rate reform in accordance with its own economic conditions.
The yuan was traded at 6.6997 against the greenback on Tuesday, the highest level since June 19 when China pledged to make the mechanism governing the yuan's exchange rate with other currencies more flexible. The yuan has risen for eight consecutive days and it has increased 1.9 percent against the US dollar since June 19.
The Foreign Ministry said on Tuesday it is not wise for the US to point its finger at the yuan's exchange rate and demand appreciation.
"Recently, there are some discordant voices in the US criticising the yuan exchange rate, and saying it (the US) would adopt any possible means to press for yuan appreciation. It is unwise and also near-sighted," the ministry said in a statement on its website.
"The trade imbalance between China and the US is not decided by the exchange rate but by globalization. Yuan appreciation cannot solve the US trade deficit, a point on which the Americans have also reached consensus."
In the latest remarks on China's currency policy by US officials, US President Barack Obama said on Monday that China had not done enough to raise the yuan's value and claimed the currency "is valued lower than market conditions would say it should be".
"They have said yes in theory, but in fact they have not done everything that needs to be done we are going to enforce our trade laws much more effectively than we have in the past," Obama told a town-hall style meeting hosted by CNBC television.
Obama also highlighted the importance of the Chinese market to the US. "It's a huge market where we should be able to export a lot of goods."
The US has seen shipments to China, its third largest export destination, growing rapidly in the first seven months of this year, up 36 percent from a year earlier. That compares to the 21 percent growth in China's exports to the US over the same period.
Obama made the remarks ahead of a meeting with Premier Wen Jiabao at the upcoming United Nations General Assembly in New York, in which the exchange rate and trades issues are expected to be high on their agenda.
In testimony to congressional hearings last week, US Treasury Secretary Timothy Geithner also expressed dissatisfaction over China's currency policy and vowed to take all available measures to push China to move more quickly on yuan appreciation.
However, despite mounting US pressure for a faster yuan appreciation, economists said there is no foundation for a rapid rise in the value of the yuan in the near term.
"A rapid yuan appreciation would inevitably have a negative impact on exporters, and eventually employment," said Song Hong, a researcher on international trade at the Chinese Academy of Social Sciences. "China is making great efforts to change its growth model by spurring domestic demand, but it cannot be done overnight," he said.
China is facing various challenges domestically, including rising labor costs, in its process of economic restructuring, and a rapid yuan appreciation could add more pressure on the economy, which has seen a marked slowdown in growth over the past six months.
Tim Condon, economist and head of ING Asian research, said that economic rebalancing is happening in China given last year's shrinking trade surplus.
"Right now, China's policy seems really to focus on growth and inflation to make sure growth does not slow too much, causing uncertainties in the global economy," said Condon. He expects a more rapid appreciation of the yuan next year.
Economists also said the US should not pin too much hope on the dollar weakening against the yuan to correct its trade imbalance.
"For the US, the fundamental cause of the imbalance is not the strong dollar. Rather, it is mainly caused by its over-consumption and over-borrowing," Yu Yongding, economist and a former adviser to the central bank, said. "Only innovation and creation will improve American competitiveness as well as create demand."
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