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Large Yuan Gain ‘Not Good for Anybody,’ Fan Gang Says

Fan Gang, former adviser to the People's Bank of China, speaking in an interview in Kuala Lumpur. Photographer: Goh Seng Chong/Bloomberg
Fan Gang, former adviser to the People's Bank of China, speaking in an interview in Kuala Lumpur. Photographer: Goh Seng Chong/Bloomberg

Sept. 27 (Bloomberg) -- Large gains in China’s currency aren’t in anyone’s interest and the yuan is already appreciating progressively, according to a former adviser to the nation’s central bank.

“A big fluctuation is not good for anybody -- not good for Chinese companies, not good for the global financial monetary system,” Fan Gang, a former member of the People’s Bank of China monetary policy committee, said in an interview in Kuala Lumpur today. The yuan “will be appreciating against the U.S. dollar, and it’s in the process” of doing so, he said.

Premier Wen Jiabao has been resisting international calls to allow the yuan to appreciate significantly, saying this month a 20 percent rise would cause job losses and “major social upheaval.” The currency has gained about 2 percent against the dollar since June 19, when the central bank said it would pursue a more flexible exchange rate after keeping it pegged for almost two years.

Fan reiterated that a revaluation of yuan -- even one of the magnitude of the yen’s appreciation during the 1970s and 1980s -- wouldn’t have a big impact on the U.S. trade deficit with China.

U.S. President Barack Obama said Sept. 20 China is keeping its currency cheap to aid exporters. China ran up a $119 billion trade surplus with the U.S. in the first half of 2010, putting it on course to exceed last year’s total of $227 billion, figures from the U.S. Commerce Department show.

Own Pace

The yuan should be allowed to appreciate at its own pace and any changes will depend on China’s economic fundamentals, Chen Jian, vice minister of commerce, said in Taipei today.

The biggest risk to China’s economy, which overtook Japan as the world’s second biggest last quarter, is an asset bubble, Fan said, adding that policy makers should increase supply to curb home-price gains. Property prices in urban China are “too high” and “difficult to accept,” according to a third-quarter survey of urban households by the central bank released Sept. 19.

Fan said he forecasts gross domestic product may expand 9 percent this year and between 8 percent and 9 percent in 2011. Inflation is not a “big risk” now as it will likely peak at less than 4 percent by year-end, he said.

China’s growth cooled to 10.3 percent last quarter from 11.9 percent in the first three months of this year, as the government tried to prevent a property bubble by curbing home purchases and closing factories to meet energy-efficiency and pollution targets. Third-quarter data are due on Oct. 21.

Inflation ran at 3.5 percent, a 22-month high, in August, pushed up by rising food costs. Food prices in China will remain stable, Zhou Wangjun, deputy director at the National Development and Reform Commission, China’s top economic planner, said last week.

To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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