Minister: China to be 'more proactive' on yuan
(Bloomberg)
Updated: 2006-09-08 17:28

China, responding to criticism from the US and Europe that the yuan is artificially weak, said it will be "more proactive and progressive" in letting the market set the currency's value.

"We have given the market a more important role in deciding the exchange-rate level and the market is playing a more important role already," Finance Minister Jin Renqing said at the end of a two-day meeting of 21 Asia-Pacific finance ministers in the Vietnamese capital of Hanoi, attended by US Treasury Secretary Henry Paulson.

The yuan this week reached its strongest against the dollar since China ended its peg to the US currency in July 2005, after the central bank on Aug 9 said it would use exchange-rate policy to help cool export-led economic growth. Paulson said after the meeting that a more flexible yuan would help cut global trade imbalances.

"We could actually see a faster appreciation of the yuan over the next few months" as China seeks to slow the economy, said Hans Goetti, managing director in Singapore at Citigroup Private Bank, which oversees about US$1.5 billion in Asia." At the end of the day, China will decide, based on their domestic agenda, how fast they will move."

He said Jin's statement didn't suggest a change in the government's policy because it emphasized a gradual strengthening.

China will "approach the reform in a more proactive and progressive way," Jin told reporters. "This is a progressive process."

Last year, the US trade deficit reached a record US$716.7 billion, or 5.8 percent of US gross domestic product. China's 2005 trade surplus reached a record US$102 billion, helping fuel an economy that grew 11.3 percent in the second quarter.

China Expert

Paulson, under pressure to push China to allow the yuan to appreciate, was on his first visit to Asia since he took office two months ago.

The former Goldman Sachs Group Inc. chief executive officer has a reputation for expertise in dealing with China, based on his 70 or so visits there before President George W. Bush chose him to succeed John Snow.

"The US believes that currency flexibility is very important," Paulson told reporters today in answer to a question about China's currency. "In terms of global imbalances, currency flexibility is one part of it."

The yuan has gained 2 percent against the dollar since the People's Bank of China ended the currency's peg to the dollar on July 21, 2005. The currency declined 0.14 percent to 7.9518 against the dollar as of 2:29 pm in Shanghai, according to data Bloomberg compiled.

Global Imbalances

China's officials including Tang Xu, a research director at the People's Bank of China, have said China needs a stronger currency to stall inflation. The yuan is a denomination of the renminbi, China's currency.

"I welcome the move by the Chinese authorities to ensure further flexibility in the renminbi," Australian Treasurer Peter Costello told reporters in Hanoi. "As China further develops, there will be a capacity to sequence reforms and introduce further flexibility."


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