MercoPress. South Atlantic News Agency

China underlines Yuan's “stability and flexibility”

China's new exchange rate system is operating in a stable manner and flexibility of the yuan is gradually improving, said Tuesday the Chinese central bank.

The market's role in setting the yuan's exchange rate will continue to increase, the Beijing-based People's Bank of China said in a statement on its website after its fourth- quarter monetary policy meeting chaired by Governor Zhou Xiaochuan.

China revalued the yuan by 2.1% against the US dollar on July 21 and said it would manage its value with reference to a basket of currencies.

The yuan has risen 0.4% against the US dollar since then, prompting criticism from the US and Europe that Beijing should allow more flexibility in its exchange rate.

Congress members and manufacturers in the US, China's biggest overseas market, say Chinese exporters benefit from an artificially weak currency. China's trade surplus for the first 11 months of the year was 90.8 billion US dollars, nearly triple the 32 billion reported for all of 2004, according to China's Customs bureau.

"Further flexible implementation of China's currency system would improve the functioning and stability of the global economy and the international monetary system," according to a statement issued after the Group of Seven meeting of finance ministers and central bankers December 2. But China has rejected criticism that it is not moving fast enough in allowing the currency to appreciate.

Premier Wen Jiabao on December 12 said China's exchange rate was "properly adjusted this year and takes into account effects on the country's neighbours and the world's economy".

China's central bank also announced it will actively stimulate domestic demand in the months ahead.

"China will actively stimulate domestic consumption, promoting the structural readjustment of China's industries and international trade".

However it did not give details but Beijing has been looking to boost domestic demand to make growth less dependent on fixed asset investment. The central bank added that China will speed up the process of changing its economic growth mode to ensure the sustainability of economic development as well as price stability.

The central bank noted that, despite the trend of stable and fast economic growth, China still faces problems of increasing pressure from the rebounding overinvestment and an imbalance of international payments. The bank described current economic growth as relatively fast and, echoing recent comments by other policy makers, warned of risks in the economy.

"Pressure for a rebound in fixed-asset investment is relatively big and there is an imbalance in the international balance of payments," it said. Future priorities for the central bank included making interest rates more market oriented and encouraging commercial banks and rural credit cooperatives to improve their ability to price risk and manage debt.

The report was released shortly after China's statistics bureau declared the economy a sixth bigger than previously thought