Minister: China to be 'more proactive' on yuan
(Bloomberg)
Updated: 2006-09-08 17:28
Rigid controls on the yuan are making it more difficult for China's central
bank to control the money supply and the surge in bank lending, which is
fuelling an investment boom the government is trying to cool.
A record trade surplus, rising foreign investment and inflows of capital
betting on a yuan appreciation have flooded the Chinese financial system with
cash. The World Bank says failure to cool expansion and lending could lead to an
abrupt slowdown in the world's largest consumer of copper, cement and steel.
Foreign Reserves
China's foreign exchange reserves doubled in the past two years, reaching
US$941 billion at the end of June, more than the value of Russia's economy in
2005.
China's holdings, which overtook Japan's as the world's largest in February,
could top US$1 trillion this year, according to economists at Standard Chartered
Bank, driven by a trade surplus that may surge by half to a record US$150
billion.
Minister Jin reiterated the government's policy of "gradual" yuan reform,
saying his country's economy is too small for any changes to the currency's
value to balance global currency flows.
"China only occupies less than 5 percent of global GDP. I don't think the
China exchange rate can play such a great role in the imbalances of the global
economy," he said.
China's government has said it must avoid rapid fluctuations in the yuan's
value because domestic financial institutions don't have enough hedging
experience and too many exporters, operating on thin profit margins, would be
put out of business.
"China will do it at its own pace, the way it suits them, and nobody else's,"
said Citigroup's Goetti.
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