South China Morning Post / By SHEEL KOHLI in London
Beijing will have to rethink its exchange rate policy, according to the World Bank, if its expected entry into the World Trade Organisation creates a significant trade deficit.
In its latest regional quarterly brief on East Asia and the Pacific, it also expressed concerns about the pace of banking reform and the slow development of the mainland's capital markets.
It said that with impending WTO entry, exports had to be maintained at a sustainable level, in the face of an expected sharp rise in imports once the mainland's trade barriers come down.
Beijing has already introduced rebates and targeted credits to encourage exports.
A forecast increase in foreign direct investment and capital inflows should also help, but the bank warned that these effects might be delayed.
"If rebates and targeted credits cannot sustain export growth while imports surge, the emerging trade deficit would make China rethink its exchange rate strategy," the bank said.
Beijing has consistently maintained a firm "no devaluation" policy, as long as it can maintain a favourable balance of payments environment.
Last month, Peoples' Bank of China governor Dai Xianglong said he expected foreign direct investment and exports to increase.
Last year, however, the mainland's trade surplus fell 31 per cent to US$ 30 billion, from $ 43.6 billion in 1998.
The World Bank said foreign direct investment and the mainland's net export earnings were among five key "developments to watch" during the coming year.
Others included the domestic investment funding shortfall, lay-offs and labour unrest as state enterprises restructure, price and income relief to rural communities, and what will be done to further structural reform.
It said the mainland's banking reforms, including forming asset management companies and tighter provisioning rules, also "fall short of a clear appreciation, measurement and articulation of fundamental problems and development of a comprehensive medium term strategy to deal with them".
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