MercoPress. South Atlantic News Agency

China fears strong Yuan could lead to unemployment

China should let the Yuan appreciate at a faster rate to reduce the country's dependency on exports and thus prevent a possible assets bubble because of the easy access to credit, said an outstanding economist former advisor to the country's Central Bank.

Yu Yongding who belonged to the Monetary Policy Committee until last August has always been a supporter of a strong Yuan to help balance the Chinese economy. "Maybe we should have a more positive attitude towards the appreciation of the Renminbi", said Yu, head of the Economy and World Policy Institute from China's Academy of Social Sciences, an important council of government experts. "As long as there's a policy of stimulating domestic demand, the Renminbi should be revalued to help reduce the trade surplus, which is larger than what we need", said Yu during a forum in Singapore. The Yuan has appreciated 6.5% since the 2.11% revaluation to 8.11 to the US dollar decided on July 2005. China is under growing pressure particularly from United States that insists the Chinese currency should appreciate at a faster rate. However Yu admitted it was hard to conceive that the Chinese authorities would allow a drastic increase of the Yuan fearing it would have an impact in the manufacturing industry, particularly textiles which are labour intensive. "The Central Bank and the government are against a drastic rise in the exchange rate of the Renminbi because we have a very important export sector", he added. If the Yuan is revalued 10% or even 5%, a large number of Chinese companies would go broke and a large number of workers would have to be fired. That is the main concern of Beijing officials", he underlined. But Yu insisted that policies must be adapted more aggressively to help keep inflation and the bubble of assets prices under control. "Personally I believe they must continue with policy adjustments, but the situation is complicated and people are very prudent". The Chinese Central Bank has raised interest rates twice this year and also instructed banks on five times to increase technical reserves to control an overheated economy. Yu revealed that the Central Bank has had growing problems in attempting to sterilize liquidity, fuelled mainly with trade surpluses and the massive influx of capital, without letting the Yuan appreciate.