China May Slow Pace of Currency's Gains, Hale Says

By Zhang Dingmin and Zhao Yidi

Sept. 28 (Bloomberg) -- China's central bank has indicated that it may slow the pace at which the Chinese currency is gaining against the U.S. dollar, according to David Hale, chairman of Hale Advisors.

``I had lunch with the People's Bank of China on Friday, where they told me they are going to slow down the appreciation of the currency here,'' Hale told a plenary session today at the World Economic Forum in eastern China's Tianjin city, without disclosing the identity of the official he spoke with.

The yuan has gained 17.3 percent against the U.S. dollar since the Chinese government abandoned the currency's fixed peg in 2005, and traded at 6.8485 per dollar on Sept. 26. It's risen 6.7 percent this year, the best performer of 10 Asian currencies.

Weakening export demand because of the U.S. housing slump and an international credit squeeze has stoked concern that China's GDP growth may slump, costing jobs and leading to bad loans and sinking profits. Government options to stimulate the economy and protect exporters include loosening bank lending quotas and restraining gains by the yuan.

The Chinese government ``should have slowed the yuan's appreciation from the start of 2008, because of the slower economic and export growth, and the difficulties small companies face,'' said Peng Xingyun, an economist with the Chinese Academy of Social Sciences in Beijing. ``The yuan's appreciation in the first half was too fast. It slowed down since July and that pace will likely stay through the end of the year.''

A People's Bank of China's spokesman could not be reached today to verify Hale's comment. Two telephone calls to the State Administration of Foreign Exchanges in Beijing were not answered.

What to Do?

``The global economic situation is so uncertain that they're not so sure what they should do,'' Hale said today. ``They haven't got a real decision, they're just thinking about slowing the pace down.''

China's economy grew 10.1 percent in the second quarter, the slowest pace since 2005.

China wants to maintain ``steady and relatively fast'' economic growth, the China Central Television reported on July 25, citing a meeting of the Communist Party's political bureau. That goal has been made more difficult because of challenges including global uncertainties and instabilities, it said.

China's yuan may some day become a reserve currency, a medium of exchange that other countries are willing to keep as their foreign reserves, Hale said.

``There's a clear perception that the yuan will become a reserve currency some day because of the sheer size of China's economy,'' Hale said today. ``Given the fact that China's capital account isn't convertible, we're talking about something that may happen in 20 years, not tomorrow.''

To contact the reporter for this story: Zhao Yidi in Beijing at at yzhao7@bloomberg.net