Chinese language - Zhou: China to increase yuan flexibility

BIZCHINA / Center

Zhou: China to increase yuan flexibility

(Bloomberg)
Updated: 2007-05-24 09:01

People's Bank of China Governor Zhou Xiaochuan, under pressure from
American officials and lawmakers to reduce his country's record trade
surplus, said China plans to further increase flexibility in the yuan's
exchange rate.

"We will continue to follow the three principles of exchange-rate reform
and increase the flexibility of the yuan," Zhou told reporters before
entering the second day of talks between U.S. and Chinese economic
leaders in Washington.

Video:
China urges patience, US urges action at talks 
Special coverage:
China-US Economic Dialogue 
Related readings:
US, China announce minor agreements
Wu aims to deflect US Congress pressure
US wants more flights to China
Tariffs change to balance trade
AmCham: There's potential for progress
Bank deals promote exports
Mechanism to build long-term ties
US looking to ease China trade tensions
Optimism high at second trade talks
Wu Yi urges US to ease curbs

China last week increased the amount it lets the yuan move against the
dollar and raised interest rates to cool growth and a swelling trade
surplus. U.S. lawmakers said the steps weren't enough to forestall
legislation to punish China for maintaining what many charge is an
artificially cheap yuan to stoke exports.

US Treasury Secretary Henry Paulson spoke with his counterpart Vice
Premier Wu Yi late into the night on May 21 on China's exchange rate,
Labor Secretary Elaine Chao told reporters Tuesday.

The yuan is now allowed to rise or fall 0.5 percent a day compared with a
daily fixing rate against the dollar. The currency closed at 7.6530
Wednesday in Shanghai, its strongest against the dollar since China
abandoned a strict peg in July 2005.

"Impatient"

Paulson said in opening the Strategic Economic Dialogue talks in
Washington Tuesday that Americans are "impatient" and that the
negotiations must produce results that cool "anti-China" sentiment. Wu
responded that "politicizing trade issues would only complicate and
seriously damage bilateral trade relations."

China has tried its best in reforming the currency, People's Bank's Zhou
told reporters Wednesday after a meeting between Chinese economic
officials and the House Ways and Means Committee. "I think the current
reform of the exchange rate regime and the flexibility is going well,"
Zhou said.

Zhou said U.S. lawmakers and Chinese officials agreed Wednesday on the
direction of yuan's reform, while disagreeing on the speed of the change.
The U.S. congressmen "think we can accelerate it, but we think it's
already moving fast enough and we have tried our best," Zhou said.

Chinese Premier Wen Jiabao has outlined three guiding principles for
adapting China's exchange-rate policy: "independent initiative,
controllability and gradualism." The yuan has gained 8.1 percent against
the dollar since July 2005, less than the 12 percent gains in currencies
such as the South Korean won and Malaysian ringgit.

Domestic Pressure

Zhou admitted Wednesday that his bank is under domestic pressure to slow
the yuan's appreciation. "Domestic exporters and some sectors think we
are moving too fast. They want us to be a little slower," he said.

China's government is concerned about the negative affect a faster yuan
move could bring to low-value domestic manufacturers, exporters and
farmers. Yuan gains between 5 percent and 10 percent will put 3.5 million
workers in the non-farm industries out of jobs, affecting more than 10
million farmers, the Beijing-based Mirror reported on May 9, citing a
report by the Ministry of Labor and Social Security.

Democratic Representative Sander Levin, of Michigan, who chairs the trade
panel of the House Ways and Means Committee, said the yuan is undervalued
by as much as 40 percent. He said China hasn't used the flexibility in
the yuan so far to let it appreciate sufficiently.

"We want to keep the heat on" China, Levin said in an interview
Wednesday. "We can't wait, they need to act now" to let the yuan climb
against the dollar, he said.

(For more biz stories, please visit Industry Updates)

Learn Chinese, Chinese language