IMF backs stronger Chinese currency as Asia powers ahead

WASHINGTON: A stronger yuan is “essential” for both the Chinese and world economies, the IMF said on Wednesday as it projected breakneck growth for China and a powerful post-crisis bounce across Asia.

The International Monetary Fund said the Chinese yuan was “substantially” undervalued, heaping more pressure on Beijing to allow the currency to strengthen to help rebalance skewed world trade.

The IMF’s latest global report projected that gross domestic product in China, which is set to overhaul Japan this year to become Asia’s biggest economy, would rocket by 10 per cent in 2010 and 9.9 per cent in 2011.

But a yuan adjustment would help China tackle “excess demand pressures,” the IMF said in an apparent reference to the threat of rising inflation, and give other emerging economies confidence to let their own currencies strengthen.

“This is essential for China given its large role in the global market,” the Washington-based Fund said.

“Greater currency adjustment in Asia would facilitate adjustment in other emerging economies that may fear losing market share if their currencies were to appreciate alone.”

The yuan has been effectively pegged to about 6.8 to the dollar since mid-2008. Speculation is growing that Beijing may soon alter its exchange rate policy, as a US-led clamor for change intensifies.

Critics, including a growing number in Asia as well as the United States and Europe, say an undervalued yuan gives Chinese manufacturers an unfair advantage by making their exports cheaper.

As a whole, according to the IMF, Asian economies will expand an average 6.9 per cent this year and 7.0 per cent in 2011, boosted by both domestic demand and foreign trade.

But it urged regional governments to plan an orderly exit from stimulus policies that helped them weather the global downturn far better than the United States or Europe.

Japan’s moribund economy will return to growth of 1.9 per cent this year but persistent deflation, weak domestic demand and a stagnant employment picture threaten a fragile recovery, the report said.

Fretting about the risk of contagion from Greece, the IMF cautioned that Japan would in time have to tackle its public debt, which at nearly 200 per cent of GDP is the highest in the industrialised world.

India should grow by 8.8 per cent this year, the report said, but has “less fiscal room for maneuver” than China and needs to trim its swollen public sector and debt.

Southeast Asia’s five biggest developing economies were seen expanding 5.4 per cent in 2010.

Australia’s resource-driven economy should strengthen 3.0 per cent this year, helped by voracious demand for minerals and other commodities to sate Chinese industry’s appetite for raw materials.

The IMF’s China growth forecast was well above the 8.7 per cent growth in 2009 and Beijing’s own annual target of eight per cent, seen as the minimum needed to create enough jobs in the massive nation to prevent unrest. Export-led China is seeking to reduce its dependence on overseas shipments and government-backed investment by pumping up domestic spending.


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