Yuan seen safe but exports at risk

Yuan seen safe but exports at risk

BEIJING (Reuter): Southeast Asia's currency crisis will have
little effect on China's yuan currency but is seen hitting
Chinese exports, an official newspaper said on Sunday.

China's huge foreign exchange reserves, which topped US$120
billion at end-June, and tough controls over capital flows would
protect China's currency, the Business Weekly, published by the
China Daily, said.

"The country has enough foreign exchange reserves to guard
against possible crises," the newspaper quoted foreign exchange
analyst Chen Quangeng as saying.

Several Asian currencies have come under speculative attacks
in recent weeks, with Thailand forced to float its baht, meaning
an effective devaluation of about 20 percent since July 2.

The currencies of the Philippines, Malaysia and Indonesia also
came under pressure.

Although a small amount of short-term speculative funds had
made their way into China, the effect on the Chinese financial
markets would be limited, Chen said without elaborating.

The recent devaluations were mainly a result of the sudden
withdrawal of foreign capital by overseas investors shaken by
weak fundamentals and expanding current account deficits, Chen
said.

He said that scenario was unlikely to happen in China, which
notched up a current account surplus of $7.2 billion in 1996 and
capital account surplus of nearly $40 billion.

"More importantly, China has a strong economic base," he said.

The Chinese economy has boomed in the first half, with gross
domestic product growing by 9.5 percent and its trade surplus
ballooning to nearly $17.8 billion.

Beijing also had strict controls over the inflow and outflow
of capital and the yuan was not freely convertible, making
it difficult for foreign speculators to operate in China, he said.

"Therefore it is impossible that a large amount of funds flow
out of China to trigger a financial crisis and currency
devaluation," he said.

The yuan exchange rate would remain stable against the U.S.
dollar in the second half of the year, he predicted. The yuan
closed at 8.2906 against the dollar on Friday and has long
hovered around the 8.3 mark.

"The rate will fluctuate around reasonable levels according to
changes of foreign currency supply and demands in the market," he
said.

However, Southeast Asia's currency crisis could hit China's
exports by reducing the region's demand for Chinese products and
making countries there more competitive against Chinese goods, he
said.

"The currency devaluation in Southeast Asian countries would
probably result in some negative effects on China's exports," he
said but gave no further details.

China exported $80.82 billion worth of goods in the first half
of the year, and the member countries of the Association of South
East Asian Nations collectively were China's fifth largest
trading partner, the newspaper said.