The premier’s remarks reiterated China’s position on the yuan. Beijing will keep the current exchange rate, a slap in the face of the United States, which has sought to have the yuan revalued. Last week, Washington had implicitly blamed China for the persisting global financial crisis in order to favour its exports.
For some analysts, China’s national interest and the US resolve to manage its crisis are shaping the yuan debate. There are some suggestions that Beijing is considering whether to revalue the yuan or not by 10 per cent. According to some estimates, China’s foreign reserves now stand at US$ 3 trillion. Appreciating the yuan by 10 per cent would represent a nominal loss of US$ 300 billion. However, if demands by US economists were heeded, and the yuan was revalued by 40 per cent, those same reserves would be cut by US$ 1.2 trillion.
For China, revaluing its currency would negatively affect overall exports and employment levels in export-oriented industries. According to Chinese government figures, a 1 per cent increase in the value of the yuan would cut exports as well as jobs by 1 per cent. For this reason, the Zhongnanhai (China’s government compound) said it cannot do more.
“This is a sign that there will be no one-off revaluation in coming months,” said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong. “China’s top policy makers do have their own currency reform plans but coercion from other countries will do disservice to this cause.”
Moreover, Chinese leaders are afraid that a stronger yuan will mean more than a lost in the value of China’s reserves in US dollars, that it will lead to higher inflation, a problem they have had to cope with over the past two years.
In his opening speech to the NPC, Wen said that China’s GDP had to grow by 8 per cent this year whilst holding inflation at 3 per cent. Traditionally, 8 per cent is the benchmark used to forecast stability in the job market and maintain social stability. Since fourth quarter growth in 2009 stood at 10.7 percent, the 8 per cent goal in 2010 seems to be within China’s reach.
However, last year’s growth was largely spurred by a 4 trillion yuan stimulus package, which in turn triggered speculation in real estate, and stocked inflation. In China’s top 90 cities, the consumer price index rose 9.5 last year. If, on the long run, nothing changes, social unrest could follow, and revive the authorities’ worst fears.
At the end of his conference, Wen was put on the defensive when a foreign reporter asked him about US-based Google’s threat to pull the plug on its Chinese operation over Chinese censorship and the detention of Rio Tinto five executives.
“China will unswervingly pursue the policy of opening up to the outside world,” Wen said. “Foreign businesses are welcome to come to China to set up businesses according to the law.”