China Denies Hopes for Yuan
China’s central bank said Tuesday that it won’t revalue the yuan again in the “foreseeable future,” dismissing speculation that last week’s appreciation is the first of many.
Currency traders and analysts, however, continue to expect further gains in the Chinese currency over time. They suggested the statement was at least partly designed to discourage speculators, whose bets on a rising yuan could lead to further inflation in Chinese asset values and reduce the government’s ability to manage the economy.
Chinese stocks, for example, continued to rise Tuesday on speculation of a rising currency.
Chinese companies need time to adjust to the 2.1% revaluation of Thursday and the shift will help curb the nation’s trade surplus, the People’s Bank of China said. Federal Reserve Chairman Alan Greenspan is among U.S. officials who called the change “a first step,” and forward contracts show investors expect a gain of 4.9% in the next year.
“The notion that the 2% revaluation is only an initial adjustment and that the central bank will further adjust the rate in the foreseeable future is wrong,” the People’s Bank of China said in a statement Tuesday in Chinese on its website.
China’s reluctance to make further changes may exacerbate trade tensions between China and the U.S. Chinese President Hu Jintao let the yuan rise after criticism from the United States and the European Union, which said the decade-old peg of 8.28 per dollar gave China an unfair trade advantage.
Sens. Charles E. Grassley (R-Iowa) and Max Baucus (D-Mont.), suggested they would withhold judgment on China, given last week’s change was the first since 1995.
“China plays things very close to the vest and you don’t want to rely too much on what they say,” Grassley, chairman of the Senate Finance Committee, said. “They have an inferiority complex and they don’t want anyone to tell them what to do.”
The comments may be aimed at reducing bets by hedge funds and other large speculators that they can force changes in the yuan’s value, said Steve Barrow, a currency strategist at Bear Stearns Cos. in London.
Li Deshui, a member of the central bank’s monetary committee, said in an interview Friday that policymakers feared a plunge in the yuan, much as happened to the South Korean won and Thai baht during the 1997 Asian financial crisis.
“This is part clarification and part a slap on the wrist for those in the market who thought there was more leeway in the decision China took last week,” Barrow said.
Sen. Charles E. Schumer (D-N.Y.), author of proposed legislation that threatens new duties on Chinese goods, said he would monitor China’s actions closely.
“While the Chinese central bank has said that they will not do another fixed valuation in the near future, we trust that the Chinese will allow market forces to work,” Schumer said in a statement.
