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China overtakes Japan as world's No. 2 economy
Reuters - July 30, 2010
Aileen Wang & Alan Wheatley, Beijing – China has overtaken Japan to become the world's second-largest economy after the United States, the country's chief currency regulator said in remarks published on Friday.
The economy expanded 11.1 percent in the first half of 2010, compared with a year earlier, and is likely to log growth of more than 9 percent for the whole year, according to Yi Gang, head of the State Administration of Foreign Exchange.
"China, in fact, is now already the world's second-largest economy," he said in an interview posted on his agency's Web site, www.safe.gov.cn.
Yi said China's growth rate, which has averaged more than 9.5 percent a year over the past 30 years, was bound to slow over time.
If China could chalk up growth this decade of 7 percent to 8 percent annually, that would still be a strong performance.
The issue was whether fast growth could be sustained, he said. If China expands by 5 percent to 6 percent a year in the 2020s, it will have maintained rapid growth for 50 years, which Yi said would be unprecedented.
He said expectations of a stronger yuan, also known as the renminbi, had diminished. There was no basis for a sharp rise in the exchange rate, partly because the price level in China had risen steadily over the past decade.
"This suggests that the value of the renminbi has moved much closer to equilibrium compared with 10 years ago," he.
Yi's remarks carried an echo of a report by the International Monetary Fund on Thursday, which said the Chinese authorities viewed the yuan right now as closer than ever to equilibrium.
"At present, there is no basis for big fluctuations in the yuan. We have the conditions to keep a flexible exchange rate mechanism and we can keep the yuan basically stable at a reasonable and balanced level," he said.
Yi's comments are unlikely to go down well in Washington, where lawmakers have scheduled a hearing for Sept. 16 to consider whether US government action is needed to address China's exchange rate policy.
China scrapped the yuan's 23-month-old peg to the dollar on June 19 and resumed a managed float. The yuan has since risen only 0.8 percent against the dollar, and economists calculate that it has fallen in value against a basket of currencies.
But China wants the yuan to be fully convertible and such currencies are generally free-floating, Yi said. He gave no timetable for convertibility to be achieved.
"Our ultimate goal is to make the yuan a convertible currency," Yi said. "If other people choose the yuan as a reserve currency, we won't stop that as it is the demand of the market. However, we will not push hard to promote it."
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