IMF says China’s currency undervalued but praises ‘effective’ response to global crisis

IMF: China currency undervalued but policy sound

BEIJING — The International Monetary Fund said China’s yuan is undervalued in a mildly worded assessment Wednesday of its controversial currency controls and praised Beijing’s response to the global crisis.

The comments came in a review by the Washington-based fund of Chinese economic policy, the first in three years. Such reviews usually are annual but the process was postponed due to disagreements with Beijing.

The IMF said several members of its board “agreed that the exchange rate is undervalued” but gave no details. The 24-member board includes the United States, China, several other individual governments and members that represent groups of economies.

Beijing held the yuan steady against the dollar beginning in late 2008 to help China’s exporters compete amid weak global demand. Washington and other trading partners complain that has hurt their companies and some U.S. lawmakers demanded sanctions on Chinese goods.

China’s central bank announced in June it would allow a more flexible exchange rate and private sector analysts expect the yuan to gain in value over time.

The IMF said a stronger yuan would help to encourage Chinese consumer spending, helping to achieve Beijing’s goal of reducing dependence on exports and making its economy more self-reliant.

The IMF praised Beijing’s rapid response in 2008 to the global crisis, which included tax cuts, incentives for consumer spending and higher social spending.

“The authorities’ quick, determined and effective policy response has helped mitigate the impact on the economy and ensured that China has led the global recovery,” the fund said in a statement issued in Washington.

China rebounded quickly from the global crisis and economic growth surged to 11.9 percent over a year earlier in the first quarter of this year. That eased to 10.3 percent in the second quarter, which the government said was the result of policies meant to slow growth to a more manageable level and avert inflation.

International Monetary Fund: www.imf.org