China revaluation would hamper growth

Professor Fan Gang, an adviser to the People’s Bank of China and one of China’s most influential economists, has said a big Chinese currency revaluation would invite speculation and damage growth.

Fan Gang, a member of the central bank’s monetary policy committee, said at an investment forum in Seoul that sharp increases in the yuan’s value would trigger ‘large speculative capital inflows and outflows that will kill China’s growth and financial stability’.

Officials from the Group of Seven nations have increased pressure on China to allow the yuan to appreciate more and take the burden off other currencies. French Finance Minister Christine Lagarde said the value of the yuan causes ‘tensions.’

Fan Gang’s reply to this is: ‘What would happen after a large — say 40% to 50% — appreciation of the yuan? Another request in two years.’

The yuan has climbed about 11.5% against the dollar since a fixed exchange rate was scrapped in July 2005.

The world’s fourth-largest economy grew 11.5% in the third quarter as record trade surpluses pumped in cash. The argument is a stronger currency would make exports more expensive, staunch the inflow of money and ease tensions with trading partners.

Source: Bloomberg