Currency revaluation will have little impact on agriculture
By Zhao Huanxin (China Daily)
Updated: 2005-08-03 05:54

China's modest appreciation of its currency, the renminbi, will have a mild and marginal impact on agriculture, rural researchers say.

The People's Bank of China, the country's central bank, announced a 2 per cent appreciation of the renminbi two weeks ago, sparking concern among academics about how the shift in policy will affect the economy.

"The currency revaluation is good for importing farm produce, but will adversely affect exports," Sun Dongsheng, a researcher with the Chinese Academy of Agricultural Sciences, said yesterday.

The appreciation will translate into comparatively lower prices for foreign farm produce for Chinese importers, according to the director of the academy's International Agricultural Trade Centre.

These products include grain, soybean, sugar, cotton and some animal and aquatic products, Sun said.

On the other hand, a stronger renminbi will put Chinese exports under more pressure, off-setting the small profits on some Chinese products, and will make them less competitive in the global market, he said.

But the effects on two-way trade will not to be significant given the relatively small increase in the value of the renminbi, plus the central bank's policy of only allowing the US dollar's exchange rate with the renminbi to fluctuate by 0.3 per cent on the foreign exchange market, Sun said.

Taking imports of soybeans as an example, Pan Qi, an analyst with the Heilongjiang Provincial Agricultural Information Centre, said the renminbi's appreciation would have a very limited influence on the domestic market.

After scrapping the yuan's peg to the US dollar, the cost of soybean imports is expected to fall by only 1.86 per cent, or 54 yuan (US$6.6), to reach 2,855 yuan (US$352) per ton, according to Pan.

Although the overall impact the slight adjustment of the renminbi's exchange rate has on agriculture will be mild for the time being, the sector will have a tough time if the currency rises further, researchers have warned.

They said China should further rely on science and technology to improve quality and the competitiveness of its farm produce, and increase the range of exports.

China exported US$10.54 billion worth of farm produce in the first five months of this year, up by 20.6 per cent on the same period last year, the latest statistics of the Ministry of Agriculture show.

Imports fell by 8.3 per cent year-on-year to reach US$10.65 billion, producing a US$110 million deficit, compared with a deficit of US$2.86 billion in the same period last year.

(China Daily 08/03/2005 page9)