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China seen keeping yuan-dollar tie
Morgan Stanley economist doesn't see currency floating soon despite pressure from trading partners.
July 7, 2003: 9:58 AM EDT

BEIJING (Reuters) - Morgan Stanley's top economist said Monday he is confident China will not bow to mounting pressure from major trading partners to revalue its dollar-pegged yuan currency.

"I do not think that China is going to run the risk of accelerating its pace of opening up its capital markets because of adverse consequences in the global economy," said Stephen Roach, managing director and chief economist at the U.S. investment bank.

China, the world's best performing major economy, with year-to-year growth of 9.9 percent in the first quarter, had become a scapegoat for weak performances elsewhere, he said.

"I fully expect that the Chinese officials will address these tension points, but will not waver from their steadfast commitment on a medium- to longer-term basis of an open capital account and currency convertibility," Roach told reporters during a trip to China.

The yuan trades in a very tight band around 8.27 to $1, meaning it has matched the dollar's slide against other currencies such as the euro over the past year.

That in turn has made Chinese goods cheaper in places like Europe, Japan and South Korea, and has led for calls from those regions for China to let the yuan appreciate.

Roach said China is years away from opening its capital account and floating the currency. He added "that doesn't mean that there cannot be some adjustments made along the way."

But speculation that China would widen the trading band any time soon appeared unfounded, said Roach, who frequently meets with top Chinese officials. He did not say who he had met on this trip.

Roach, who has a reputation for being bullish on China, said Morgan Stanley erred when it cut its gross domestic product, or GDP, growth forecast for the world's sixth-biggest economy during the height of the SARS outbreak.

At the time, the investment bank knocked its initial forecast of 7 percent growth for 2003 down to 6.5 percent.

"We now know that we were wrong in having made that adjustment," he said. The bank has since pumped its forecast up to 7.5 percent growth, down from 8 percent in 2002.

"While there's clearly unmistakable pressure that was evident in the months of April, May and early June on the Chinese service economy, the much larger manufacturing and tradable goods economy did not feel the impact of SARS in any material way whatsoever."  Top of page

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