China Rules out Appreciation of Yuan

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Last updated at: (Beijing Time) Friday, April 19, 2002

China Rules out Appreciation of Yuan

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A deputy governor of the People's Bank of China said Thursday that there is no real economic reason for China's currency to appreciate although the country's foreign exchange reserves have been swelling.

"On the economic level, the renminbi is not under pressure to appreciation,'' Wu Xiaoling told the China Business Summit. The three-day meeting, an annual event co-organized by the Davos-based World Economic Forum and China Enterprise Confederation, opened Thursday.

A currency strengthens when the country's economy become substantially stronger, Wu said. But she did not see major changes in the strength of the Chinese economy relative to the world economy in the near future, she said.

Since 1997, when the Asian financial crisis started, it has been routine in the public appearances of senior officials of the central bank to say that the value of the yuan is to remain stable.

But this time, Wu Xiaoling was not dealing with concerns about the yuan being devalued.

China's rapid economic growth and strong position internationally have made any concern about the yuan depreciating unnecessary.

Forex reserves triggered speculation on RMB's arrpreciation

However, the country's hefty forex reserves, growing by a year-on-year 29 per cent to US$228 billion by the end of March, have triggered speculation that the yuan may appreciate in value.

"The mounting of forex reserves is mainly caused by the regulators' control of demand,'' Wu said.

China's exporters are required to sell their hard currency income to the banks.

But importers need to show buying documents to buy foreign exchange. Demand for foreign currencies for other purposes such as travelling are only partly met. Conversion of yuan to hard currencies for investment must first be approved by relevant authorities.

Wu said that the forex reserves would not be so huge if restrictions were less strict.

But she did not say if the restrictions would be relaxed. She just repeated the official line of the central bank that they would "improve the renminbi's exchange rate formation mechanism under the precondition of the renminbi's stability.''

Transformation of the financial sector was another key topic on the agenda of the China Business Summit.

Zhou Xiaochuan, chairman of the China Securities Regulatory Commission, said improvement of the banking sector's health and building of a complete financial market are among the top challenges China faces as a member of the World Trade Organization.

Flexibility of macroeconomic policies and strengthened corporate governance are the other two things the country needs to pursue, Zhou said.

Source: China Daily

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