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• JANUARY 7, 2010

China Researcher Argues for 10% Yuan Gain

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By VICTORIA RUAN

BEIJING -- The debate over China's controversial currency policy is heating up, with a researcher at a local think tank saying that it is a good time for a 10% appreciation of the yuan.

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Associated Press

A China Construction Bank clerk counts yuan bills last month in Nantong, in China's Jiangsu province.

Beijing remains concerned that a stronger yuan could set back the fragile recovery in China's export sector. But many economists inside and outside China think the currency's de facto dollar peg is also aggravating economic problems, such as the risk of asset bubbles and inflation.

"There's a very urgent need" for pushing forward changes to the exchange rate, and "now is the best time," said Zhang Bin, a research fellow at the Institute of World Economic and Politics under the Chinese Academy of Social Sciences. Mr. Zhang, who presented his essay at a local seminar on the economy, said a 10% one-off appreciation of the yuan against the dollar "would have limited impact on China's macroeconomy" and could deter inflows of speculative capital betting on future currency gains.

Mr. Zhang's essay doesn't represent the government's view, but it does suggest something of the range of options being debated among Chinese economists as policy makers look at how to head off inflationary pressures in a rapidly growing economy. "We haven't talked with the government about this. This is our own independent research," said He Fan, assistant director of the institute.

China's government has been vocal in its defense of a policy that has kept the yuan's value against the U.S. dollar basically unchanged since mid-2008. "Keeping the yuan's value basically steady is our contribution to the international community at a time when the world's major currencies have been devalued," Premier Wen Jiabao said last week. In a separate report Wednesday, the central bank repeated its standard language on keeping the currency's value stable.

Major trading partners like the U.S. and the European Union have been urging China to allow its currency to rise, arguing that keeping the yuan at an artificially low level is helping Chinese exporters at the expense of companies in other countries more hard-hit by the financial crisis.

Many economists still think a one-off appreciation of the yuan is unwise, unlikely, or both. Zhu Baoliang, an economist at the State Information Center, another government think tank, said that there is no need for a one-time yuan appreciation. He said the yuan's rise since 2005, when China first moved away from a strict targeting of the dollar, "hasn't solved the problem of trade surpluses."

Wensheng Peng, economist at Barclays Capital, argued that a one-off rise in the yuan wouldn't necessarily dent market expectations of future gains enough to end inflows of speculative money. These "are not sufficient reasons for a one-off yuan appreciation," he said. Mr. Peng said he expects the yuan to slowly rise against the dollar this year at an annual pace of 5%.

—Liu Li and Victoria RuanPrinted in The Wall Street Journal, page A4