Float of yuan could harm its sovereign ratings: S&P

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Last updated at: (Beijing Time) Monday, September 15, 2003

Float of yuan could harm its sovereign ratings: S&P

Standard & Poor's Ratings Services said Monday that any float of China's currency would be dangerous and could damage the sovereign's creditworthiness, as well as that of local banks.

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Standard & Poor's Ratings Services said Monday that any float of China's currency would be dangerous and could damage the sovereign's creditworthiness, as well as that of local banks.

The comments are contained in a Standard & Poor's commentary article published in the run-up to the IMF/World Bank meetings next week in UAE's Dubai.

Ping Chew, Standard & Poor's sovereign credit analyst for China was quoted as saying Monday that despite increasing pressure on China by its trade partners, including the US and Japan, to revalue its currency, preferable by allowing the Chinese renminbi to float, Standard & Poor's considers that lifting of exchange controls at the moment could be risky because Chinese banks are not well-equipped to handle volatility in the exchange rate.

Expanding on the risks of currency float, Paul Coughlin, Managing Director of Standard & Poor's Asia-Pacific Corporate & Government Ratings, said "we learned from the Asia currency crisisin the mid-1990s that the combination of a weak banking system, floating exchange rates and free flows of capital can be a very dangerous combination."

As with previous challenges, China can be expected to respond to its trade surplus and pressure for revaluation in piecemeal fashion. It might remove export tax subsidies, encourage overseas tourism, overseas investment and more generally will allow the liberalization under the WTO to enhance import growth, the rating services said.

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