Wen Jiabao

Market to get bigger role in yuan's value

PUBLISHED : Thursday, 17 May, 2007, 12:00am
UPDATED : Thursday, 17 May, 2007, 12:00am

Premier signals flexibility on currency


Beijing will allow the market to play a bigger role in determining the yuan's exchange rate, Premier Wen Jiabao said yesterday ahead of high-level economic talks with the US next week.


Beijing has come under fire from the US and others over the value of its currency, which critics say is artificially low and gives exporters an unfair advantage.


'We are deepening reform of the foreign exchange management system to improve the mechanism of setting the [yuan] exchange rate and to give greater scope to the role of the market,' Mr Wen told the opening ceremony of the annual meeting of the African Development Bank in Shanghai.


'We're improving [the] management of foreign exchange reserves by expanding the scope and ways of using foreign exchange reserves.'


China has the world's largest foreign exchange reserves, more than US$1.2 trillion - in part because of its booming exports - and Beijing is planning to set up a special agency to manage the money. Some analysts have warned of the impact on the US dollar should Beijing reduce US dollar assets following the establishment of the new agency.


Mr Wen cited problems caused by the inflow of foreign funds, including a growing imbalance of international payments and excessive liquidity. 'We're taking comprehensive measures to address these problems,' he said.


Expectations of further appreciation of the yuan have lifted both the property and stock markets to levels that have alarmed the government, and officials are warning retail investors of the risk.


Mr Wen said Beijing would introduce greater interest rate flexibility, control money supply and credit, stimulate domestic demand and seek more balanced trade, but he offered no details.


Although banks have some leeway, China's base interest rates are set by the administration. Beijing has been trying to spur domestic consumption instead of relying mainly on exports and investment to support economic growth.


Speaking to representatives of African countries, Mr Wen stressed the need for financial reforms to help support economic growth.


'This is not only conducive to China's economic and social development, but also helps to ensure international economic and financial stability,' he said. Central bank chief Zhou Xiaochuan , who also spoke at the opening ceremony, said strong world growth and stability in markets had created a good environment for developing countries.


African Development Bank president Donald Kaberuka said Africa could learn from China and other Asian countries on how to promote rapid growth, reduce dependence on aid and recover from economic shocks.


He said Asia's emergence as the world's fastest-growing market presented opportunities - and some inspiration - for Africa, but also challenges.