Drastic rise in China's yuan could trigger financial crisis: economist
A drastic rise in China's currency, the yuan, could trigger a financial crisis, a leading Chinese economist has warned in comments published in state press.
A stronger yuan would lead to more imports and less exports, exacerbating China's problem with overcapacity, said Peking University scholar Lin Yifu, according to the China Daily.
This may, in turn, lead to deflation, lower corporate profits, an increase in banks' bad loans and "could even trigger a financial crisis," Lin, an advisor to the government, was quoted as saying.
He suggested that China stick to the principle that the yuan's rise be "independent, flexible and affordable."
The China Daily repeated forecasts made by various officials that the currency -- which the government does not allow to move by more than 0.3 percent each day against the dollar -- was expected to gain five to six percent this year.
Lin's statement followed remarks last week by United States Treasury Secretary Henry Paulson, who promised Washington lawmakers angry over Asian trade policies that he would press China harder to fully float its currency.
"China does not yet have the currency policy that we want it to have and that it needs," Paulson told the US Senate banking committee.
Since a 2.1 percent revaluation of the yuan in 2005, the currency has appreciated about four percent, a pace that major trade partners, especially Washington, claim is far too slow and gives Beijing an unfair trading edge.
China is wrestling with a massive trade surplus that last year hit 177 billion dollars but Beijing argues that appreciation of the currency must come slowly, in line with its financial environment, which it considers weak.
