Chinese Premier Promises More Flexible Yuan
Tue Sep 28, 2004 09:49 AM ET
BEIJING (Reuters) - Chinese Premier Wen Jiabao pledged on Tuesday to push ahead with reform to make the yuan currency more flexible, but left analysts none the wiser about the timing of any significant change.
Wen made the comments before a historic meeting between China and the Group of Seven leading industrial nations later this week, at which the thorny issue of yuan reform is expected to be near the top of the agenda.
"We will further advance the reform and forge a mechanism which is more adapted to the changes in market supply and demand, with still better flexibility," the official Xinhua news agency quoted Wen as saying.
Improving the yuan exchange rate mechanism and maintaining "basic stability" of the rate at a "reasonable and balanced level" are the goals of the reforms, Wen was quoted as telling Charles Prince, CEO of Citigroup Inc, and Robert Rubin, former U.S. Treasury Secretary, in Beijing.
U.S. politicians have argued the currency, pegged at 8.28 per dollar, is undervalued and gives China an unfair trading advantage.
U.S. Treasury Secretary John Snow said last week he would use the meetings in Washington to urge China to move faster toward a freer yuan. Wen's remarks, however, were not a major departure from China's mantra on currency reform and analysts said they offered little new.
"It's just a restatement of existing government policy, that they do want to have a more flexible regime. There's no new insight on when that's going to happen or what kind of form it's going to take," said Mansoor Mohi-uddin, currency strategist at UBS.
China has repeatedly said it will loosen currency controls only gradually, and that it must first make progress in cleaning up its banking sector, turn around ailing state-run companies, and create tens of millions of new jobs.
Wen said various factors should be considered in the process of reforming the mechanism for setting the exchange rate.
Among them, he listed China's macroeconomic performance, social development, international income and expenditure, and progress in banking reform plus the economic and financial health of China's neighbors and of the world.
Most analysts expect China to shift first to a system under which the yuan is tied to a basket of currencies, rather than moving straight to a free float. But the timing of such a switch remains a source of speculation.
A Finance Ministry official who declined to be identified said China was unlikely to announce any policy changes at the meeting of G7 finance ministers and central bank governors, which starts on Friday. Continued ...
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