China should take a moderate approach to adjusting its exchange rate and be selective in introducing foreign direct investment (FDI).

 

Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD), yesterday said the country needed to keep a close eye on its exchange rate as it is playing an increasingly important role in redressing global trade imbalances.

 

Supachai, who retired last year as director-general of the World Trade Organization, was in Shanghai for a press conference marking the official release of the UN Trade and Development Report 2006 in China.

 

Since the beginning of the 1990s, China's domestic demand and its imports have grown very strongly, and the country has played a vital role in spreading and sustaining the growth momentum throughout the developing world a process which must not be derailed.

 

Therefore, renminbi revaluation should continue gradually rather than abruptly, taking due account of regional implications, says the report.

 

"It is important for China to maintain its economic growth. China should also be selective on FDI. It should not simply look at quantity, but also quality," said Supachai.

 

According to the UNCTAD report, redressing trade imbalances has become an urgent global task. Without quick international action to reduce global imbalances, a financial crisis in the wake of a tumbling dollar will threaten the growth of the world economy.

 

What is needed to redress global imbalances is a responsible multilateral effort rather than pressure on parts of the developing world.

 

A well-coordinated international macroeconomic approach would considerably enhance the chances of poorer countries being able to preserve and continue their recent growth.

 

In the absence of such an approach, developing countries should defend their positions and use the current favorable conditions to invest more and reduce foreign debts, said the report.

 

UNCTAD economists fear the United States has become overburdened in its role as the consumer of last resort and as the locomotive of global growth. For a long time, the US Government has been able to ignore its enormous and growing trade imbalance, as no conflict with sustaining full employment and price stability at home has arisen up to this point. But the potential for such a conflict is a key risk today, as domestic sources of growth are bound to weaken.

 

(China Daily September 7, 2006)