Premier vows to keep stable yuan exchange rate
Wen Jiabao says he will also place controls on sectors that are growing too fast
Premier Wen Jiabao has pledged to maintain a 'basically stable' yuan exchange rate as Beijing comes under mounting international pressure to revalue the currency.
And for the first time he has expressed serious concern about over-investment and overheating in the economy, promising to place controls on bank lending to sectors that are growing too fast.
The mainland would gradually perfect the yuan exchange rate formation mechanism and maintain the basic stability of the currency at a reasonable and balanced level, he was quoted on CCTV as telling a high-level national financial conference which opened in the capital yesterday.
His comments indicate that Beijing is unlikely to revalue the yuan at a higher level against the US dollar soon, despite media speculation to the contrary.
On Monday, the People's Bank of China, the central bank, denied a report by a mainland business newspaper that Beijing could increase the value of the yuan by 5 per cent in March and by 10 per cent later this year or early next.
The report came amid thinly veiled calls at the weekend by the G7 group of rich nations for the mainland and other Asian countries to move towards more flexibility in their exchange rate policies.
The US has been leading the campaign by western countries to pressure the mainland to lift artificial controls that fix the exchange rate at about 8.28 yuan to the US dollar. America has blamed a cheap yuan for flooding its markets with cheap imports, causing job losses.
Mr Wen told the conference there had been new problems in the economy. These included over-investment in some sectors, serious duplication of low-level industrial projects, a shortage of energy resources and raw materials, and excessively rapid growth in money supply, with inherent risks to the financial system.
He promised controls on bank lending to sectors that already had too many investments. Although he did not mention any by name, officials have said the central bank has ordered commercial banks to reduce lending to the car-making, steel and property sectors.
Mr Wen said the government would speed financial reforms, with a focus on restructuring the Bank of China and China Construction Bank into shareholding entities. The two state banks have targeted overseas listings this year and next.
Wu Dingfu, chairman of the China Insurance Regulatory Commission, said yesterday it had begun a feasibility study on allowing mainland insurance funds to invest in overseas bond markets. This appears to mark the start of the long-awaited Qualified Domestic Institutional Investor scheme, under which the mainland will allow domestic investors to place funds in overseas capital markets.
