MNI INTERVIEW:China Should Avoid Yuan Range Deal: CASS's Zhang

--Any Agreement On Yuan Range Against Market Driven Currency Goal: Zhang

By Iris Ouyang

     BEIJING (MNI) - China should not cave in to U.S. pressure and agree a

specific trading range for the yuan as part of a wider trade agreement, as it

would go against the move towards a market-driven exchange rate, a senior

researcher at the Chinese Academy of Social Sciences told MNI in an interview.

     "I suggest we make no promise to maintain the yuan in a specific range,

because we want yuan exchange rate formation to be market-based," said Zhang

Yuyan, director of the Institute of Word Economics and Politics at CASS.

     In ongoing trade talks, the U.S has pressed China to commit to stabilizing

the yuan. U.S. Trade Representative Robert Lighthizer said in Congressional

testimony Wednesday that a currency pact could comprise two parts, with China

pledging not to devalue on a competitive basis, and to be transparent about

intervention in the markets.

     "China certainly won't engage in competitive devaluation of its currency

because it would cause chaos in the foreign exchange market," Zhang told MNI.

"The future direction would still involve increasing the decisive function of

the market. But this is a process, which can't be achieved immediately."

     He stressed Beijing will enhance transparency of exchange rate formation,

but said China is unlikely to report to the U.S. every time it intervenes.

     --GROWTH RATES STABLE

     China's GDP will grow by between 6% to 6.5% this year, Zhang told MNI,

citing favourable fiscal and monetary policies, as well as considerable room for

a pick-up in consumption.

     But protectionism, a slowing world economy and rising global debt levels

are likely headwinds for China's economy this year, Zhang said.

     "We need to pay particular attention to U.S. protectionism," he said.

"Though the good news is that talks between the U.S. and China have had some

positive results, Washington is also waving the tariff stick at Japan, E.U. and

other countries."

     Weak growth in Italy and Germany would further damage the global economy,

with the International Monetary Fund's global growth forecast already lowered to

3.5% for this year from 3.7% forecast in October. The slowdown will drag on

demand for Chinese exports, he said.

     Higher global debt levels could be further impacted if the U.S Federal

Reserve hikes rates again this year, Zhang said, noting it would cause

disruption in developing countries. Zhang also expressed concern that the Fed,

with policy rates now at 2.25% to 2.5%, had insufficient firepower to counter

the next recession. It would be better placed with rates at 4-4.5%, he said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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