How Much Will China Appreciate the Yuan?

The potential fluctuation of the Chinese currency yuan is capturing the spotlight in the global financial market.

Many say the yuan’s appreciation is imminent because China, which has shown “no response” to repeated appreciation demands from Western nations, including the United States, has clearly changed its stance.

China is also Korea’s largest trading partner, and a change in Beijing’s foreign exchange policy will significantly affect the Korean economy. So the timing and the scope of the appreciation is grabbing heated interest.

People’s Bank of China Gov. Zhou Xiaochuan mentioned a turning point in China’s foreign exchange policy, saying, “We’re paying attention to the exchange rates of the U.S. dollar against other currencies.”

In a news briefing Saturday and Sunday while the National People’s Congress was going on, he said, “China’s monetary policy will stay in step with changes in economic indicators.”

“The emergency system will return to normal someday.”

The emergency system refers to China’s restoration of a fixed rate of 6.82 yuan against the dollar since July 2008, when signs of the global economic crisis loomed. Beijing had adopted a floating rate in July 2005, appreciating the yuan 21 percent against the dollar.

The majority of experts say the yuan will be appreciated as early as next month because of stronger U.S. pressure on China to do so and China’s export growth turning positive in December last year for the first time in a year.

American economist Nouriel Roubini told Bloomberg yesterday that China will end the yuan`s current de facto peg to the dollar in the second quarter at the earliest, appreciate the yuan two percent, and raise it again one or two percent in 12 months.

Most observers saying China will appreciate the yuan less than five percent, but others predict three to six percent.

“All market players predict appreciation of three to four percent within a year,” said Jeong Mi-yeong, head of the research team at Samsung Futures, “Since one-year yuan currency futures are being traded at the appreciate price of three to four percent, it will not differ much from the market’s prediction.”

In view of the yuan’s expected appreciation, the Korean government plans to block possible shocks from China by strictly monitoring foreign exchange and the financial market.

“China does not yield to outside pressure on its economic policies,” a high-ranking official of the Strategy and Finance Ministry said. “Though China could appreciate the yuan due to pressure from the foreign exchange market, it will not raise it to the level that it can significantly slow exports.”

cha@donga.com lovesong@donga.com