BEIJING — The International Monetary Fund said China’s yuan is undervalued in a mildly worded assessment of China’s contentious currency controls and praised Beijing’s response to the global crisis.
The comments came in a review by the Washington-based InternationalMonetary Fund of China’s economic policy, the first in three years. Such reviews usually are annual but the process was postponed because of disagreements with the Chinese government.
The IMF said several members of its board “agreed that the exchange rate is undervalued” but gave no de-tails. The 24-member board includes the United States, China, several other individual governments and members that represent groups of economies.
Beijing held the yuan steady against the dollar beginning in late 2008 to help China’s exporters compete amid weak global demand. Washington and other trading partners complain thathas hurt their companies and some U.S. lawmakers demanded sanctions on Chinese goods.
China’s central bank announced in June that it would allow a more flexible exchange rate and private-sector analysts expect the yuan to gain in value over time.
The IMF said a stronger yuan would help to encourage Chinese consumer spending, helping to achieve Beijing’s goal of reducing dependence on exports and making its economy moreself-reliant.
The IMF praised Beijing’s rapid response in 2008 to the global crisis, which included tax cuts, incentives for consumer spending and higher social spending.
“The authorities’ quick, determined and effective policy response has helped mitigate the impact on the economy and ensured that China has led the global recovery,” the fund said in a statement issued in Washington.
China rebounded quickly from the global crisis andeconomic growth surged to 11.9 percent over 2009 in the first quarter of this year. That eased to 10.3 percent in the second quarter, which the government said was the result of policies meant to slow growth to a more manageable level and avert inflation.
Some IMF directors said strengthening in the yuan, a denomination of China’s renminbi currency, will help the country rebalance its growth drivers, while others said such a shift is already taking place.
“Many directors stressed that, over time, a stronger renminbi would help facilitate a shift from exports and investment to private consumption as the principal driver of economic growth,” according to the IMF statement. “A number of directors pointed to signs that a structural shift in the balance of payments is already underway, reflecting the reforms already put in place to strengthen consumption.”
Still, IMF staff considers that a faster consumptionrate is needed to rebalance the economy away from exports and investment, the IMF’s China mission chief Nigel Chalk said on a conference call with reporters on Wednesday.
The report recommends measures such as improving social safety nets and lowering some of the labor taxation, he said.
Information for this article was contributed by Shamim Adam and Sandrine Rastello of Bloomberg News.
Business, Pages 19 on 07/29/2010