US demands for appreciation will not sway Beijing's currency policy China will not bow to international pressure to allow the yuan to appreciate by more than 4 per cent a year, a leading Chinese economist said. The comments from Peking University professor Lin Yifu coincided with China's reiterated commitments to balance trade by boosting financial reforms and domestic demand despite calls from the US at an International Monetary Fund meeting in Washington over the weekend urging Beijing to allow the yuan to strengthen faster. In an interview, the professor said the currency would appreciate by no more than 4 per cent a year despite the political pressure coming mainly from the US. The yuan continues to strengthen against the US dollar, firming to around 7.7250 last week, a new best under the two-year-old, managed-float regime. This has brought cumulative appreciation to 5 per cent, on top of the initial 2.1 per cent revaluation as part of the de-pegging from the American currency in July 2005. But most of the gain - 2.9 per cent - was made after Henry Paulson's first visit to Beijing as US Treasury Secretary, in September. 'Beijing will definitely not let the yuan strengthen at a faster pace, as this would be to China's disadvantage. The US has called for a faster appreciation out of political concerns. Economically, it would also harm the US economy as higher import value after the appreciation would mean a worse trade imbalance for the country,' said Professor Lin. The professor is a regular visitor to Zhongnanhai, the leadership compound in Beijing, and one of the five experts who in April drafted the Asian Development Bank's Eminent Persons Group report. The economist said China was going in the right direction by reiterating its stance of allowing the yuan to strengthen gradually. But he said China should make this clearer in order to 'break the dreams of international players who expect 20-30 per cent appreciation this year'. Hot money, or capital intended for short-term speculation, showed its obvious presence in China's first-quarter financial figures. The US$15.9 billion in foreign direct investment, with a trade surplus of US$46.4 billion, came to US$62.3 billion. This total was US$73.4 billion short of the US$135.7 billion foreign reserves increase in the first quarter. To address this excess liquidity, other domestic economists have suggested allowing the yuan to appreciate more quickly. However, Professor Lin believes the solution lies in boosting domestic demand and pushing ahead with financial reforms. As an advocate of the 'New Socialist Countryside' programme, Professor Lin is pinning hopes on rural financial, welfare and infrastructure projects to benefit 800 million rural dwellers. In addition, setting up and further developing the current 100-plus regional commercial banks is a key task for Beijing in serving small- and medium-sized enterprises. In January, a report by a research institute affiliated with the Ministry of Commerce suggested the value of the yuan should rise by 4 per cent to address global imbalances. Later, the ministry clarified that this was not official policy. The rapid rise of foreign exchange reserves in the first quarter was due to the big trade surplus, currency swaps and funds raised overseas by Chinese firms, central bank vice-governor Wu Xiaoling said yesterday at a Guangzhou forum. Ms Wu said the many Chinese enterprises listing overseas had boosted foreign exchange reserves, while some companies had recently sold currencies to the central bank on the expectation that the yuan would appreciate further, Xinhua reported.