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Swelling forex reserves won't affect renminbi-dollar rate

By Xin Zhiming (China Daily)
Updated: 2010-01-16 07:54

The yuan's value against the dollar will not change much this year despite China's swelling foreign exchange reserves, which hit a record of near $2.4 trillion in 2009, analysts said.

Meanwhile, the country's new bank lending reached 9.6 trillion yuan ($1.4 trillion), almost double that in 2008, which has led to widespread fears about the bursting of potential liquidity-fueled bubbles.

But despite the predictions of some foreign commentators, the possibility of an economic "hard-landing" in China this year is slim, economists said.

China's foreign exchange reserves, already the world's largest, swelled last year by $453.1 billion, or 23.3 percent year-on-year, to reach $2.4 trillion, the People's Bank of China said in a statement on Friday.

The continually increasing reserves certainly would put pressure on the yuan to be appreciated, but there will not be a big adjustment in the value of the Chinese currency this year, said Dong Yuping, a senior economist at the Chinese Academy of Social Sciences.

China has allowed the yuan's value to rise by more than 20 percent since it adopted a new foreign exchange rate regime in July 2005.

But the currency's fast appreciation has created difficulties for some exporters, pushing many of them to the verge of bankruptcy since 2008, when they also faced slumping overseas demand resulting from the global economic crisis.

China may fine tune management of its foreign exchange rate policy this year by allowing the yuan to appreciate by 3-5 percent, but there would not be any major revaluation, said Chen Xingdong, chief economist of BNP Paribas Peregrine Securities Limited.

"But its efforts to raise salaries, save energy and protect the environment this year would push up manufacturers' and exporters' costs, which would have a similar effect to a yuan revaluation," he told China Daily.

Dong said the country's exports had regained their growth momentum, as indicated by their 17.7 percent year-on-year rise in December, which will result in further increases in China's foreign exchange reserves. The increase in capital inflows under the capital account will add to that pool.

This year China's foreign exchange reserves could increase by as much as they did in 2009, he told China Daily.

While bank lending is expected to continue to soar this month, the authorities would adopt mild regulation to ensure an economic "soft-landing", analysts said.

China would not introduce any abrupt, drastic tightening policies this year, thus excluding the possibility of a sudden economic contraction, Chen said.

The central bank also said China's broad measure of money supply, or M2, increased 27.7 percent by the end of December, 9.9 percentage points higher than a year ago.

In another development, the State Administration of Taxation said on Friday that the country registered tax revenues of 6.31 trillion yuan in 2009, 9.1 percent more than in the previous year.