MNI INTERVIEW: China Trade Surplus Cut W/ US May Not Tank Yuan

     BEIJING (MNI) - The Chinese currency may hold its value against the dollar

as the world's second-largest economy seeks a smaller trade surplus with the

U.S., under pressure from the administration of President Donald Trump, an

influential former central bank official said in an interview with MNI.

     While China has promised to boost imports of U.S. products, its overall

international balance of payment may not change significantly, so the yuan isn't

necessarily set for a straight decline against the greenback, said Guan Tao,

former Director-general of Balance of Payments at the State Administration of

Foreign Exchange(SAFE), a division of the People's Bank of China (PBOC).

     There is no consensus that China's shifting trading pattern will ultimately

lead to the yuan's decline, even if trade surplus against the U.S shrinks, Guan

said.

     "The market's expectations diverge. Some believe more imports would boost

China's domestic consumption and investment, which would attract more capital

inflow to offset the reduction in trade surplus, which supports the yuan," said

Guan, who is now a full-time senior fellow at China Finance 40 Forum, a leading

think tank with members from the private sector and the government.

     --STABLE BALANCE

     As long as China's economy holds steady and savings and investments don't

change drastically, it will be able to keep the balance of payments stable, Guan

said.

     Imports of consumer goods largely depend on the overall consumption level,

which won't sharply change either, and some of those imports would replace a

significant portion of the current direct purchases through overseas online

sites, Guan said. 

     Boosting purchases of U.S. products, such as its energy and agricultural

commodities, may also displace purchases from other countries and regions, said

Guan.

     For years, China counted on its trillion-dollar current-account surpluses

to support the yuan. That dominance has declined in the last two years as its

economy transformed from export-dependent to consumption-driven. The current

account surplus as a share of GDP dropped to 1.3% in 2017 from a peak of 10% in

2007.

     --SMALLER YUAN DEPRECIATION 

     Yet this year, the yuan's depreciation versus the dollar has been smaller

than most other currencies since the dollar's rebound started in mid-April. In

the period from April 17 to June 6, CNY/USD fell 1.82%, while the broader dollar

index rose 4.7%.

     Meanwhile, the yuan's decline was the smallest among all the G10

currencies: EUR/USD dropped 4.8%, JPY/USD 2.87%, GBP/USD 6.44%.

     The trend is clearly reflected in the CFETS Weekly RMB Index, which

measures the yuan relative to a basket of 24 currencies. It was up 0.37% by the

end of May from the week of April 13, touching 97.88 in the week of May 18, the

highest since April 2016.

     Some in the market suspect China has acted to keep a strong yuan and use it

as a potential bargaining chip against the U.S. Guan disagreed and added that

it's too early for China to pursue this tactic.

     "The yuan's exchange rate is not a focus in the trade conflicts, China has

no need to please the U.S." by keeping the currency strong, the advisor said.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

[TOPICS: MAQDS$,MMQPB$,M$A$$$,M$Q$$$,MC$$$$,MI$$$$,MT$$$$,MX$$$$,MGQ$$$]