Yuan Already Near Equilibrium Says China

The yuan is getting close to the equilibrium value, said Chinese government think tank economists, refuting the US claim that it remains undervalued by about 20%.

China’s position is based on the nation’s shrinking trade surplus, slowing growth of its foreign exchange reserves and recent downward moves by the yuan. The yuan has risen 30.2% against the dollar since July 2005 when China began its currency reform to allow the yuan to float within a narrow range, said a report issued by the PBOC’s financial research center.

China’s forex reserves grew $50.9 billion less in the third quarter than in the second quarter due to a narrowing trade surplus which has shrunk to only 2% of GDP, far less than the 6% forecast by the IMF. China’s economists argue that the US view of the yuan’s natural value is based erroneously on the discredited IMF forecast.

The yuan has become the focus of rhetoric by US politicians seeking to position themselves as trade hawks who will pressure China to export less and import more, thereby creating US jobs.

China has substantially increased imports of US beef, pork, soy, wheat and dairy products as crop shortfalls and rising consumer demand have led to unacceptably high food inflation this year. However, China’s efforts to import more US machine tools and technology have been stymied by stringent US controls on exports of “sensitive” technology that may be used to produce hi-tech weapons systems. Some such items are as mundane as machine tools that allow production of highly precise metal components based on concerns they will be used to produce propellers for silent, stealthy submarines. China gets around these restrictions by importing items through third nations and by buying most of its advanced machinery from Russia and other nations.