BEIJING (Dow Jones)–A prominent Chinese think tank on Wednesday said now is a good time for a 10% revaluation of the yuan as it warned the world’s third-largest economy is at risk of asset bubbles and overheating this year.
The comments, in an essay by a researcher at the Institute of World Economic and Politics under the Chinese Academy of Social Sciences, run counter to top leaders’ frequent defense of the government’s current yuan policy of gradual reform and resistance to international pressure for currency appreciation.
“There’s a very urgent need” for pushing forward the reform plan on the yuan and “now is the best timing,” said Zhang Bing, a research fellow at the institute, which was once headed by former central bank monetary policy committee member Yu Yongding.
“A 10% appreciation in the yuan against the dollar should have a limited impact on the Chinese economy,” and reduce speculative fund inflows by effectively eliminating expectations of a yuan appreciation, he said.
The one-off appreciation should be made before the yuan can float in a wider band, Zhang said. Calling for a “more reasonable” yuan exchange rate, he said the Chinese unit should be allowed to rise or fall as much as 3% annually against the U.S. dollar.
“The yuan can reference a basket of currencies in a way that the central bank feels suitable,” Zhang told Dow Jones Newswires on the sidelines of a seminar Wednesday at which he made the yuan recommendations.
The Chinese Academy of Social Sciences regularly offers policy ideas to the Chinese government for consideration, though its views don’t necessarily represent official government thinking.
The timing of the institute’s latest policy advice comes as China’s trading partners have intensified criticism of Beijing’s currency policy, saying the yuan is artificially undervalued to boost local exporters, hurting world trade amid the global financial crisis.
At home, debate over China’s economic policy continues to heat up ahead of the annual parliamentary session in March where Premier Wen Jiabao will lay out the government’s economic blueprint for this year. China’s leaders have said 2010 is a critical year to consolidating the gains made by the domestic economy following the global financial crisis.
In another essay presented by the institute during the seminar, researchers called on China to adopt a tighter monetary policy.
They said if Beijing’s fiscal and monetary stimulus policies remain unchanged from last year, the domestic economy will grow 16% in 2010 and risk overheating. If the stimulus is fully withdrawn, GDP would grow 7.7% this year, but if the stimulus policies were kept at “an appropriate magnitude” the economy would grow 11.6%, they said.
The researchers estimated China’s GDP grew 8.5% in 2009.