LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - Document
Copyright 2005 AFX News Limited
AFX International Focus
April 15, 2005 Friday 4:49 AM GMT
LENGTH: 343 words
HEADLINE: China currency revaluation will almost cancel trade surplus - Goldman Sachs
BODY:
BEIJING (AFX) - A five pct real increase in China's yuan will act to almost cancel out the country's trade surplus as both imports and exports are sensitive to exchange rate change, Goldman Sachs said.
A five pct appreciation of the yuan, which has been fixed in a narrow trading band of around 8.28 to the dollar for over a decade, could result in the disappearance of most of China's trade surplus, while a 10 pct increase would render a small trade deficit, Goldman Sachs said in a research note.
'Contrary to the popular view that a yuan appreciation would not affect China's trade pattern, we believe a five to 10 pct real appreciation of the yuan could go a significant way in narrowing China's trade surplus,' the brokerage said.
An appreciation of the yuan will soften exports while encouraging imports, with a 10 pct appreciation of the real exchange rate resulting in a 15 pct reduction in export volume over time, Goldman Sachs said.
'Economic theories tell us that the more open and the more price sensitive an economy is, the smaller the currency needs to adjust to correct a given amount of trade imbalances.'
China's economy has become substantially more open following 25 years of reform, and trade liberalization policies have led to tariff rates and non-tariff barriers that are much lower than those of Japan or South Korea when they were at a similar stage of development, it said.
'After 25 years of reform, the Chinese economy has become substantially more open, and more market-oriented,' it said.
'Therefore, we should expect trade patterns to be more responsive to market price signals.'
But a zero trade balance should not be the benchmark for fair value of China's currency as, given the country's relative higher returns, it should be a net importer and run a current account deficit rather than a surplus, Goldman Sachs said.
'Policy choices that keep the yuan peg and suppress domestic demand will likely widen the trade surplus and tilt the Chinese economy to a more imbalanced growth path,' it added.
will.davies@xinhuafinance.com
wd/dg/dk
LOAD-DATE: April 16, 2005
Copyright 2005 AFX News Limited
AFX International Focus
April 15, 2005 Friday 4:49 AM GMT
LENGTH: 343 words
HEADLINE: China currency revaluation will almost cancel trade surplus - Goldman Sachs
BODY:
BEIJING (AFX) - A five pct real increase in China's yuan will act to almost cancel out the country's trade surplus as both imports and exports are sensitive to exchange rate change, Goldman Sachs said.
A five pct appreciation of the yuan, which has been fixed in a narrow trading band of around 8.28 to the dollar for over a decade, could result in the disappearance of most of China's trade surplus, while a 10 pct increase would render a small trade deficit, Goldman Sachs said in a research note.
'Contrary to the popular view that a yuan appreciation would not affect China's trade pattern, we believe a five to 10 pct real appreciation of the yuan could go a significant way in narrowing China's trade surplus,' the brokerage said.
An appreciation of the yuan will soften exports while encouraging imports, with a 10 pct appreciation of the real exchange rate resulting in a 15 pct reduction in export volume over time, Goldman Sachs said.
'Economic theories tell us that the more open and the more price sensitive an economy is, the smaller the currency needs to adjust to correct a given amount of trade imbalances.'
China's economy has become substantially more open following 25 years of reform, and trade liberalization policies have led to tariff rates and non-tariff barriers that are much lower than those of Japan or South Korea when they were at a similar stage of development, it said.
'After 25 years of reform, the Chinese economy has become substantially more open, and more market-oriented,' it said.
'Therefore, we should expect trade patterns to be more responsive to market price signals.'
But a zero trade balance should not be the benchmark for fair value of China's currency as, given the country's relative higher returns, it should be a net importer and run a current account deficit rather than a surplus, Goldman Sachs said.
'Policy choices that keep the yuan peg and suppress domestic demand will likely widen the trade surplus and tilt the Chinese economy to a more imbalanced growth path,' it added.
will.davies@xinhuafinance.com
wd/dg/dk
LOAD-DATE: April 16, 2005
posted by Eastlaw at 2:17 AM
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