China May Signal Yuan Move to Temper Global Criticism – WWW.NIFTYVIEWS.

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India’s Finance Minister Pranab Mukherjee said China, its biggest trading partne
r, may signal moves toward revaluing the yuan within a month to temper criticism
its currency is aiding exports.
“Let us see what steps they will take, how best they adjust this,” Mukherjee, 74
, said in an interview in New Delhi yesterday. “They are fully aware of this pro
blem, perhaps in the G-20 finance ministers meeting we may have some idea,” he s
aid. G-20 officials gather June 4-5 in Busan, South Korea.
Mukherjee’s comments indicate sustained pressure for a stronger yuan even as Eur
ope’s debt crisis underscores Chinese policy makers’ concern about the durabilit
y of the global recovery. Yuan forwards are headed for the biggest weekly gain t
his year on bets China will soon relax its peg to the dollar.
China, the world’s fastest-growing major economy, halted the currency’s 21 perce
nt, three-year advance against the dollar in July 2008 to help exporters weather
recessions in the U.S., Europe and Japan. Authorities in Beijing have kept the
currency at about 6.8 to a dollar, a policy that has blunted the competitiveness
of Asia’s export-dependent nations, whose currencies have appreciated this year
.
Mukherjee, who served as the foreign and defense minister in Prime Minister Manm
ohan Singh’s cabinet before being appointed as the finance minister, is under pr
essure from local exporters to use the Group of 20 platform to campaign against
China’s currency policy.
‘Fairly Priced’
“If all countries who are suffering because of the pegged yuan were to act toget
her, certainly their currency will be fairly priced,” said M.S. Unnikrishnan, ma
naging director at Thermax Ltd., a Pune, India-based power equipment manufacture
r.
Chinese policy makers have indicated they are waiting for clearer signs of a sus
tained global rebound before deciding to let the yuan gain. Premier Wen Jiabao s
truck a cautious note yesterday about the world economy, saying the sovereign-de
bt crisis in some countries is “deepening” and the foundations of a global recov
ery are not yet “solid.”
“The current turmoil in Europe will, if anything, validate China’s decision to s
tay on hold,” Win Thin, senior currency strategist at Brown Brothers Harriman &
Co. in New York, said in an interview. “Everyone else may want the yuan to appre
ciate, but they’ll do what they think is best. Trying to figure out when they’ll
do this is really guesswork.”
Thin said he expects China to make a move on the yuan “sometime in the third qua
rter at the earliest.”
Market Projections
Traders expect China to revalue its currency before the U.S.-China Strategic and
Economic Dialogue in Beijing on May 24- 25. The yuan’s 12-month non-deliverable
forwards appreciated 0.6 percent this week to 6.6685 per dollar as of 9:48 a.m.
in Hong Kong, reflecting bets the currency will advance 2.3 percent from the sp
ot rate of 6.8283, according to data compiled by Bloomberg. That was the biggest
weekly gain since the five-day period ending Dec. 25, 2009.
Even so, global economic uncertainties may delay any Chinese move to revalue the
yuan. Adjustments to China’s interest rates and currency policy may be delayed
because “there is a growing risk that the Greek debt crisis will worsen and spre
ad,” China International Capital Corp. economists led by Ha Jiming said on May 1
1.
Mukherjee, who returned to the finance ministry last year after holding the port
folio between 1982 and 1984 in Indira Gandhi’s cabinet, said the crisis in Greec
e is a lesson for India to cut its budget deficit.
European Rescue
Mukherjee spoke after the European Union mounted an unprecedented effort to halt
a collapse on confidence in the ability of members including Greece, Spain and
Portugal to sustain their debt loads. Governments, with International Monetary F
und backing, this week pledged almost $1 trillion to prevent financial instabili
ty, days after agreeing to a 110 billion-euro ($138 billion) rescue of Greece.
The International Monetary Fund estimates India’s debt at 86 percent of GDP, alm
ost four times China’s. Fiscal restraint may help the South Asian nation secure
a higher sovereign-debt rating, which is now the lowest among the BRIC nations,
which include Brazil, Russia and China.
Mukherjee, who in 2008 successfully rallied China, Japan, Russia and 42 other na
tions to end India’s nuclear isolation and resume supplies without signing the N
uclear Non-Proliferation Treaty, said India would still emerge an “important” de
stination for foreign investments because of its growth prospects.
Mukherjee expects India’s $1.2 trillion economy, Asia’s biggest after Japan and
China, to expand about 8.5 percent in the year ending March 31.
He said India would “carefully” monitor the capital inflows, which could strengt
hen the currency and hurt the nation’s exports.
“We are watchful and appropriate action will be taken to ensure that there is no
rude shock,” he said.