China may reform its currency as exports surge again PTI Jun 10, 2010, 12.

19pm IST

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Yuan| USA| export| dollar| Currency| China

BEIJING: China's exports surged by 48.5 per cent year on year in May, triggering speculation that the much awaited reform of its currency Yuan against the US dollar is round the corner. Imports too climbed 48.3 per cent, China's General Administration of Customs (GAC) announced today. In value terms exports totalled USD 131.76 billion in May, while imports totalled USD 112.23 billion. The US and the EU accuse China of making windfall profits out of its exports by pegging its currency deliberately low that makes its exports cheaper.

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In March, China posted its first monthly trade deficit in the past five years, but was soon followed by a small surplus in April. However, with a 20-billion trade surplus, the Chinese government may finally begin to increase the value of its currency against the dollar, which is being vehemently demanded by the United States.

Chinese President Hu Jintao promised reform during last month's US China Strategic and Economic Dialogue, which was expected to be implemented in a gradual manner. Economists said the reforms are likely to coincide with the forthcoming G20 summit on June 26-27 in Toronto, Canada and would be implemented on a gradual basis rather than a one-off revaluation, state run China Daily reported today. "With the surplus getting bigger, the currency revaluation is likely to be implemented most likely around the G20 Summit," said Dong Xian'an, chief economist at Industrial Securities in Shanghai. Concerns about the trade deficit and the likely impact of the European debt crisis on China's exports and the economy have provided fodder for the government to delay currency revaluation plans in the last two months. "The trade deficit is only momentary and exports growth will be stronger than expected and supported by return of price inflation in exports by mid-2010. We expect China will reform its exchange rate regime very soon," Sun Mingchun, an economist with Nomura Global Economics, said in a report. "Something has to be done on the currency, and the International Monetary Fund (IMF) still believes that the renminbi is substantially undervalued," IMF President Dominique Strauss-Kahn said recently. "If there are indications that the European debt crisis will not deteriorate, we expect the Chinese government to de-peg its currency from the US dollar during the G20 meet in Toronto," said Yan Jinny, an economist from Standard Chartered Shanghai. The yuan appreciation is expected to be one of the most important discussion items at the Summit, the Daily said. "We think China is likely to focus on reforming the foreign exchange regime and later consider a gradual appreciation of the renminbi rather than implement a one-off revaluation," said Sun from Nomura.