China's central bank chief is calling on Japan to halt the depreciation of the yen, to ease pressure on other Asian economies. China pledges not to devalue its own currency, the Renminbi.
Dai Xianglong, head of the People's Bank of China, is warning Japan to maintain the stability of the yen - or risk a domino effect of competitive devaluation, across Asia. Mr. Dai told reporters in Beijing Tuesday that Chinese central bank officials have contacted their counterparts in Japan asking them to stop a further slide in the yen.
He says a depreciating yen won't necessarily be good for Japan's economy, hurts Asia's economic stability, and exerts pressure on China's own exchange rate.
The Japanese currency has fallen to three year lows against the U.S. dollar in recent months, as Tokyo tries to overcome a recession. China worries that the sliding yen could make its exports less competitive compared with Japan's.
Despite the pressure caused by a weaker yen, Mr. Dai pledges to maintain the stability of China's exchange rate. He says China's international balance of payments is in good shape, with foreign direct investment last year up 15 percent over the year before. He adds that China's foreign exchange reserves are also up 28 percent over the previous year, amounting to $212 billion. Analysts say China is unlikely to tamper with the RMB anytime soon.
Bob Broadfoot, head of the Political and Economic Risk Consultancy in Hong Kong, said that China wants to maintain an image of continuity while its leaders prepare for a transfer of power later this year. "The government in China," he said, "is going through leadership change now and it doesn't want to time any currency adjustment in a way that could be interpreted especially by the domestic audience in China as a sign of weaker leadership."
Mr. Broadfoot adds that China is already a cost-effective place for manufacturing goods, and devaluing the Chinese currency would not make its exports any more competitive.
But China has warned that the global slowdown will hurt its export performance in 2002. It expects economic growth this year to slow to around 7 percent, down from last year's growth rate of 7.3 percent.