Banker dismisses allegation that "undervalued yuan costs American jobs"
(Xinhua)
Updated: 2004-03-08 10:38

The allegation that the Chinese currency RMB is undervalued and that has cost American jobs is unfounded, said a Chinese central bank official.

Guo Shuqing, vice-governor of the People's Bank of China, the central bank, and director-general of the State Administration of Foreign Exchange (SAFE), said even if RMB, the Chinese currency, appreciates by as much as 100 percent, it will not change the fact that the cost of Chinese labor is far lower than that in the United States.

Guo said the per-capita wage of Chinese workers in the manufacturing sector is only 3 percent that of their American counterparts.

"Even if the Chinese currency appreciates by 100 percent, which is an extreme hypothesis, the per-capita wage of the Chinese workers would account for only 6 percent that of their American counterparts."

"Our study shows that the impact of exchange rate on the economy and employment has been overexaggerated," he noted, adding that is probably why the voices against RMB exchange rate in some countries has become feeble.

Although many countries have grumbled that the Chinese currency is undervalued, they have in fact benefited from the rapid growth of the Chinese economy, said Guo, who is also a member of the National Committee of the Chinese People's Political Consultative Conference.

The US exports to China grew by at least 24 percent, while those of Japan and the European Union all jumped by 37 percent, he said.

Exchange rate does not have any big impact on foreign trade either, he said. Theoretically, lower exchange rate would stimulate export and inhibit import, he noted. But in 2003, China' s RMB exchange rate trended low. Yet China's import and export were accelerated, with import outgrowing export by 5.3 percentage points and favorable trade balance dropping by 15.9 percent. That is the result of exchange rate impact being offset by many other factors.

Furthermore, he said, the changes in exchange rate cannot be reflected on the prices of imports and exports instantly and entirely and import and export are closely interdependent. What is favorable for one party is not necessarily unfavorable for the other party.

He said China's managed floating exchange rate system conforms to the realities of China and it will continue for a long time to come.

China's foreign exchange reserve grew by US$116.8 billion to US$403.3 billion in 2003, he said.

The increase in China's foreign exchange reserve, he noted, is attributable to numerous domestic and overseas factors as the country records continued surplus in international payments.

Chinese officials last week rejected warnings by US Federal Reserve Chairman Alan Greenspan that China faces grave economic consequences if the country continues to pile up massive US dollar holdings as it defends the pegged yuan system.

A nation's foreign exchange reserve epitomizes the state of its balance of international payments, and the result of its macro- economic performance and it is therefore, usually hard for the government to set reserve targets, he explained.

China maintains the forex reserve mainly for the purpose of guarding against international financial risks, ensuring the balance of international payments and safeguarding security of the national economy.

As a large developing country at the stage of fast economic growth and transition of economic restructuring, adequate forex reserve will raise China's capability of international settlement and protect the credibility of both the country and its companies, and improve overseas confidence of the Chinese economy and currency, Guo said.