Tuesday, December 9, 2008

Yuan Watch : 'Wider Adjustment'

2.09.08, 06:47 AM EST
HONG KONG, Dec 9 (Reuters) - China should consider widening the yuan's trading band to provide the currency flexibility needed to support exports at a time of depressed global demand, a senior Chinese government researcher said on Tuesday.

Zhang Xiaoji, a director-general with the Development Research Center, a Beijing think-tank, said the external environment was so grim he would be happy with zero growth in exports next year.

'There's a possibility there will be negative growth,' Zhang, whose think-tank reports to the State Council, China's cabinet, said of the outlook for exports.

'If there's no negative growth this would be good because the crisis this time is much greater than the last,' he said, referring to the 1997/98 Asian financial crisis and the bursting of the dotcom bubble in 2001.

An adviser to the People's Bank of China said earlier on Tuesday that mainland exports could have fallen in November from a year earlier for the first time in seven years. The figures are due for release on Wednesday.

Zhang said he favoured flexibility in the yuan, also known as the renminbi.

'If not, then if the difference between the U.S. dollar and other currencies becomes too large, it may hurt the interests of our (export) enterprises,' Zhang said.

'If the U.S. dollar continues to strengthen and the renminbi continues to strengthen with it, it will become very negative for our exporters,' he added.

The yuan's trading bands 'could be adjusted even wider' to allow for this flexibility, Zhang added.

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