WASHINGTON (Reuters) - China recognises the need to let its currency appreciate for the good of its domestic economy but the move will only come in the “medium term”, the International Monetary Fund’s Asia director said on Saturday.
IMF Asia Director Anoop Singh told Reuters that China and other export-focussed Asian countries have been compelled by the stalling of growth in Western economies to seek a new model of sustained growth.
“That involves a range of policies to raise consumption (and) rebalancing and improving the exchange rate is part of this and I think we will see that over the medium term,” he said in an interview.
He would not be drawn further on how soon appreciation might be allowed.
Whether, when and by how much China might begin to let its tightly-controlled yuan appreciate is the focus of intense speculation on financial markets.
China’s exchange rate is also a growing political issue for the United States, where some politicians and manufacturers say keeping the yuan pegged at an artificially low rate hurts U.S. exports and steals jobs.
But there has been little sign of renewed pressure on Beijing from finance ministers and central bankers at four days of G20 and IMF talks in Washington — possibly a sign that officials expect China to let the yuan move soon.
Markets raised bets on the scale of yuan appreciation expected over the next year on Friday to a 2.73 percent gain, but that is still tiny compared to estimates from some economists that it is as much as 40 percent undervalued.
With the need to reduce huge trade imbalances one key topic at this week’s talks, Singh said what was important was that China saw the need to shift its economic growth model from exports and investment to consumption.
He said it was a mistake to concentrate on the details of exactly when the yuan might begin to move.
“But over the medium term, I think there is greater recognition that currencies are also tied in some way to their productivity and to their higher growth rates,” he said.
“It’s a range of policies and currency appreciation is part of that,” he said.
China needs to raise the labor share of income, raise private consumption, and improve its financial system to reduce high savings to help domestic demand, especially among low-income households, he said.
Singh warned, however, that even a China that boosts consumption and shifts production away from exports will not make up for the shrinkage in demand expected as Western consumers retrench amid sluggish growth in the rich world.
“If you look ahead three to five years, it’s very difficult to expect China to compensate fully for the change we might expect in consumption in advanced economies such as the U.S.”
(Reporting by Paul Eckert and Dan Burns; Editing by Patrick Graham)