China May Be Forced To Devalue Yuan, Says Envoy
China may be forced to devalue its currency if the Japanese yen continued to depreciate, Chinese ambassador in India Zhou Gang said yesterday.
"Further depreciation of the yen will force China to rethink its policy not to devalue the yuan," Gang said at a meeting organised by the Federation of Indian Chambers of Commerce and Industry here.
He said China had decided not to devalue its currency to ensure steady development of the Chinese economy and the prosperity and stability of Hong Kong. However, he admitted that it would be difficult to expand exports unless the Chinese currency depreciated. The only recourse open to China was to become more competitive by lowering costs in every possible way to optimise the commodity structure, improve the investment climate and accelerate the implementation of the strategy of diversifying the markets.
Gang said China will co-operate with Japan to stabilise their economies as well as the economies of South-East Asian countries. This was crucial since the instability and a continued depreciation of South-East Asian currencies would affect China's trade and investment. "We have asked the Japanese government to take serious measures to stabilise the yen," he said.
Gang said the depreciation in the currencies of South-East Asian nations and Japan had put "heavy pressure" on the yuan. But China continued with the policy of not devaluing for maintaining stability and furthering economic development.
However, this policy had caused an adverse impact on Chinese economy and overseas investments and China had to face stiff competition from the goods originating from the South-East Asian countries, he said. Conveying China's desire to strengthen its ties with India, the ambassador urged the civil aviation authorities of the two countries to explore the possibilities of establishing direct air links between Delhi and Beijing.
"I hope the civil aviation authorities will take a positive attitude in opening direct flights between the two countries," he said.
Gang pointed out that the total trade volume between the two countries in 1997 accounted for only 2.4 per cent of India's total trade volume and 0.56 per cent of China's total trade volume in the same year.
Both China and India were developing countries enjoying vast territory and rich resources but burdened with a huge population, he said, adding that the two economies had been growing fast.
The respective markets were attractive to each other and had great potential, he said.