A prestigious Chinese economist said Wednesday that he believes China's currency reform should be advanced in a "gradual, minor" manner in the wake of a 2 percent appreciation of yuan announced one month ago.

Yuan's value should be adjusted on the back of "real economic changes" in regard of trade, prices and productivity, instead of succumbing to outside pressure, said Lin Yifu, director of Beijing University's research center on Chinese economy, in an exclusive interview with Xinhua.

China now implements a managed, floating exchange rate mechanism based on market supply and demand, which Lin said should be adhered to.

He claims that the yuan is now undervalued, if it is, by a mere 2-3 percent -- no more than 5 percent. "Under this circumstance, if the renminbi is revalued by 15-20 percent, the Chinese economy would be impaired."

Some countries, typically the United States, argue that the yuan was artificially lowered by 20-30 percent, giving Chinese exporters an "unfair" advantage and "threatening" their domestic job markets.

China raised the value of renminbi from around 8.28 to 8.11 per dollar on July 21 and scrapped its peg to the dollar, shifting to "referring to a basket of currencies" to determine the value of its currency.

But senior Chinese leaders and central bankers have repeatedly said the decision was made in the light of domestic scenario.

Lin said Chinese exports to the United States are largely labor-intensive ones that are not manufactured by the country itself. "They did not squeeze the room of US products."

A big-margin revaluation of yuan means that the United States would either continue to import goods from China at higher prices or buy the products it needs from other countries, which would also be more expensive than the current imports from China, he said.

"Both measures cannot help ease the jobless pressure in the United States. What's more, its trade deficit would be even larger (if the measures are taken)."

"Leading US economic officials know about this."

He acknowledged if the US government does not put pressure on China's currency reform, there would be no expectation on the yuan's further, substantial appreciation internationally. He said,"There are no real economic fundamentals for speculative trading of yuan."

Lin went on to say speculation on yuan is actually quite costly considering that China still controls trading through capital accounts and that traders would give up stable yields otherwise from US bonds, which now stand at about 5 percent annually.

"If the renminbi is revalued just by 2 percent each year, speculators would suffer losses and leave the Chinese market after asking for trouble."

Source: Xinhua