Source: Xinhua

02-27-2008 16:22

China's long-awaited but unexpected decision to appreciate its currency sent shock waves to the international financial market.

Economists hold that the new RMB rating system will have a positive effect on the country's economy in the long run.

The RMB yuan, which had been pegged to the US dollar for over a decade at a rate of one dollar for 8.27 yuan, began to be traded at 8.11 starting 19:00 Thursday, according to the announcement released by China's central bank, with pegging system being switched to refer to a basket of foreign currencies.

"The 2 percent appreciation of RMB may weaken exports and boost imports," Wang Zhao, a research fellow with State Council Development Research Center Marco-economy Department, said, "in other words, the net exports will see a decline."

However, the move helps China build a healthy and sustainable development structure. The export-oriented policy of RMB being pegged to the US dollar, which made made-in-China commodities less expensive, provoked a series of trade conflicts in the latest years."

Many overseas firms moved to China to take advantage of China's cheap labor force. The appreciation of RMB squeezes the profit margin of labor-intensive and heavily-polluted firms, Wang said.

"For example, some tennis rackets are made of carbonic material, which is heavy-polluted. The appreciation might force these companies to leave China," he said.

"According to the purchasing power parity evaluation, the RMB was really undervalued," said Zhao Yumin, a research fellow on the international market from the Ministry of Commerce. "The appreciation pushes RMB closer to its real value."