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China's economy can be steered toward soft landing

By Yu Yongding (China Daily)
Updated: 2008-10-29 09:20

In drafting a policy for the yuan's appreciation, the country's original goal was to promote a transformation of its economic structure and lower its economic dependence on external demands, but not to curb inflation. Under this established strategy, the country should not change its currency policy just because of the change of economic development cycles.

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Any export increase through adhering to the yuan's low exchange rates is essentially to subsidize foreign countries, especially the US, through sacrificing the national interests. In the face of a devalued dollar and an aggravating inflation in the US, any attempt to pursue a rapid trade surplus growth is only for the interests of foreign trade sectors at the expense of the whole economy.

It is known that the country can stimulate domestic demands and increase public spending to offset any possible negative effects on its economic growth to be brought by the decline of trade surplus following the yuan's appreciation.

To reduce to a minimum the negative effects brought by an appreciated yuan, the country should further strengthen the capital control system. It is very necessary for the central bank to strengthen control and management on the movement of trans-national capital to stop excessive foreign capital entering the country's low-priced stock market. At the same time, we should also be on a high alert against any abrupt exodus of hot money, which would also cause strong impacts upon the national economy.

The author is former director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences

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