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[tvoivozhd <tvoivozd AT infionline.net>]

"The U.S. dollar is no longer -- in our opinion is no longer -- (seen) 
as a stable currency, and is devaluating all the time, and that's 
putting troubles all the time," Fan said, speaking in English.




Associated Press
Economist: China Loses Faith in Dollar
Wednesday January 26, 4:37 pm ET
By Edith M. Lederer, Associated Press Writer
China Has Lost Faith in Stability of U.S. Dollar, Top Chinese Economist 
Says at World Forum

DAVOS, Switzerland (AP) -- China has lost faith in the stability of the 
U.S. dollar and its first priority is to broaden the exchange rate for 
its currency from the dollar to a more flexible basket of currencies, a 
top Chinese economist said Wednesday at the World Economic Forum.

At a standing-room only session focusing on the world's fastest-growing 
economy, Fan Gang, director of the National Economic Research Institute 
at the China Reform Foundation, said the issue for China isn't whether 
to devalue the yuan but "to limit it from the U.S. dollar."

But he stressed that the Chinese government is under no pressure to 
revalue its currency.

China's exchange rate policies restrict the value of the yuan to a 
narrow band around 8.28 yuan, pegged to $1. Critics argue that the yuan 
is undervalued, making China's exports cheaper overseas and giving its 
manufacturers an unfair advantage. Beijing has been under pressure from 
its trading partners, especially the United States, to relax controls on 
its currency.

"The U.S. dollar is no longer -- in our opinion is no longer -- (seen) 
as a stable currency, and is devaluating all the time, and that's 
putting troubles all the time," Fan said, speaking in English.

"So the real issue is how to change the regime from a U.S. dollar 
pegging ... to a more manageable ... reference ... say Euros, yen, 
dollars -- those kind of more diversified systems," he said.

"If you do this, in the beginning you have some kind of initial shock," 
Fan said. "You have to deal with some devaluation pressures."

The dollar hit a new low in December against the euro and has been 
falling against other major currencies on concerns about the 
ever-growing U.S. trade and budget deficits.

The U.S. currency came under some pressure Wednesday, drifting lower 
versus most currencies including the Japanese yen and the euro, as 
dealers mulled the Chinese official's statements.

Fan said last year China lost a good opportunity to do revalue its 
currency, in July and October.

"High pressure, we don't do it. When the pressure's gone, we forgot," 
Fan said, to laughter from the audience. "But this time, I think Chinese 
authorities will not forget it. Now people understand the U.S. dollar 
will not stop devaluating."

Asked how speculation about revaluation could be curbed, he noted that 
China imposed a 3 percent tariff on Chinese exports.

Some Chinese experts say that perhaps inflation can be reduced this 
year, "but I'm not that optimistic," Fan said, noting that fuel prices 
keep rising.

"So maybe China (will) have 4-5 percent inflation in 2005," he said.

Fan, whose nonprofit institute specializes in analyzing the Chinese 
economy, stressed that the country's development is a long-term process 
that will take decades, maybe a century.

Since China's economic modernization began over a decade ago, 120 
million rural laborers have moved into cities, but another 200 million 
or 300 million people need to move into the cities from the countryside 
to spur development, he said.

"The income disparity is huge, and income disparity will stay with us 
for a long time, as long as those 200 to 300 million rural laborers stay 
in the countryside," Fan said.

Nonetheless, William Parrett, chief executive of Deloitte Touche 
Tohmatsu, told the panel that Chinese companies are making significant 
progress in becoming global giants, led by state-owned companies.

"It's probably at least 10 years before the objective of the government 
of 50 of the largest 500 companies in the world being Chinese" is 
achieved, he said.