China is right to proceed gradually in reforming the renminbi's foreign exchange rate, suggests a veteran China expert with US-based Global Insight, one of the world's leading economic and financial forecasting companies.

"It (the reform) should not be launched before China reins in its economic growth and achieves a soft landing," says Todd Lee, the company's managing director responsible for its China operation.

Lee has been monitoring China's economic performance for more than seven years. He says he has noticed the mounting pressure on China by some of its major trading partners, particularly the United States to revalue its currency.

International hot money, betting on the possible appreciation of the renminbi, is also adding to the pressure.

Under such circumstances, it is wise not to move at the moment, Lee says.

His remarks support top Chinese leaders' determination that China will not yield to external pressure. Chinese Premier Wen Jiabao earlier this month reiterated the reform is an issue for China, and that reform will not occur before the time is right.

Lee says the right time will come after China's economy being spurred by some overheated sectors, including real estate and steel cools down.

"I don't think the Chinese Government will announce the reform in the immediate future," he tells China Business Weekly.

The central government's current priority is to strengthen macro control, as investment remains hot in some sectors, especially real estate.

Urban fixed-asset investment jumped 25.7 per cent in the year's first four months, while growth in gross domestic product (GDP) hit an unexpected 9.5 per cent 1.5 percentage points higher than the 2005 target.

"When the government aims to curb overheated investment, it needs relatively strong exports to support the economy," Lee says. He adds a change in the renminbi's foreign exchange rate may harm exports and, in turn, worsen the national economy.

Moreover, a hasty move to reform the currency might trigger further speculation in the market, Lee adds. According to Global Insight's estimates, some hot money is expecting a 15-per-cent appreciation of the renminbi.

"If the margin of appreciation is not as high as they expect, they (the speculators) will bet on a second appreciation," Lee says.

He adds it is unfair for some Western countries to press China to reform its currency. He says most of the pressure is coming from domestic political factors in other countries.

Kevan Watts, chairman and chief executive officer of Merrill Lynch International, earlier this month, told the FORTUNE Global Forum in Beijing "at many times, the (renminbi) issue is raised more out of political reason rather than economic reason."

Lee says the integration of China's economy with the world economy is inevitable, and that some of China's industries will develop competitive advantages.

"Actually, cheap products from China help fatten US people's wallets they spend less," he says. "Everybody going to Wal-Mart can feel the benefits."

Such benefits, however, are overlooked by those nations' governments, who hear only the voices of affected manufacturers.

"Some Western countries, on the one hand, advocate free trade, while, on the other hand, take any possible measures to protect their own interests," Lee says.

China's Minister of Commerce, Bo Xilai, shares that view. In some recent remarks, he said Western countries, when having overwhelming advantages, preach free trade and ask others to open their doors. But they impose restrictions and shut their own doors immediately after they are challenged by developing countries.

Lee suggests, from a long-term point of view, China does need a more flexible renminbi foreign exchange rate system, and needs to reform the renminbi's peg to the US dollar.

He says he is confident China's economy can achieve a soft landing this year.

"The growth rate will slow down in the third or last quarter," he says. "If the growth rate remains as high as 9.5 per cent then, that will be dangerous."

The hardest part of strengthening macro control is dragging investment growth down to a reasonable level, while preventing a sharp rise in the unemployment rate, which might affect social stability.

China hopes to create 9 million jobs this year, to keep the registered urban unemployment rate to 4.6 per cent.

The ideal GDP growth rate for China might be 7-8 per cent, Lee says. "At that rate, we can expect a sound economic performance, if investments go down while exports remain strong and domestic consumption becomes bullish."

He adds China is a main topic of discussion among the world's economic analysts.

With the exception of US economic performance, his firm's clients are most interest in China.

To better meet customer demand, Global Insight which USAToday named the No 1 forecaster last year, and which has twice been named by the Wall Street Journal as the top economic forecasting company will establish an office in Shanghai later this year. The firm is also considering opening an office in Beijing.

Global Insight provides comprehensive economic and financial coverage of countries, regions and industries. It has more than 550 analysts, researchers and economists.

(China Daily 05/30/2005 page4)