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China questions dollar slide
Updated: 2004-11-29 16:26

Chinese Premier Wen Jiabao has criticized the United States for not taking measures to halt the slide in the dollar and insisted that China will not revalue the yuan under pressure.

Chinese Premier Wen Jiabao speaks during a trilateral meeting with Japan's Prime Minister Junichiro Koizumi and South Korea's President Roh Moo-hyun on the sidelines of the 10th Association of Southeast Asian Nations (ASEAN) Summit in Vientiane, Laos, November 29, 2004. [newsphoto]

"We have to ask a question. The US dollar is depreciating and it is not managed," he told reporters in Laos late Sunday when asked about pressure to change the yuan's decade-old peg to the dollar.

"What is the reason for that? Shouldn't the relevant parties adopt measures?" he asked.

Turning the tables on the United States, he contrasted the lack of US attention to its currency with China's attitude during the Asian financial crisis seven years ago.

"China is a responsible country," he said. "In 1997, during the financial crisis, we maintained the basic stability of the yuan and made the kind of contribution that we should."

At the time, many hailed Beijing's decision to keep the yuan unchanged, providing a rare oasis of relative strength and certainty while all around the region one currency after another collapsed.

Yuan and dollars. China's central bank has reiterated that while it plans to loosen the tightly controlled exchange rate system, no immediate adjustments to the current trading band will be made. [AFP]
Now US exporters complain that the yuan, pegged at about 8.3 to the dollar since 1994, is undervalued and gives China an unfair advantage by making Chinese exports cheaper.

"Honestly speaking, the more speculation (about a yuan revaluation) there is in society, the more unlikely it is that the necessary measures can be undertaken," Wen told journalists.

Chinese analysts estimate that this kind of speculation has allowed up to 30 billion dollars of "hot money" to enter across China's borders as investors hope for a revaluation of the currency.

Their gamble is that China's central bank will revalue the yuan, giving them an immediate overnight profit.

However, a decision to adjust the currency policy after a decade of stability was not to be taken lightly, the premier indicated.

"You must consider the impact on China's economy and society and also consider the impact on the region and the world," he said.

A series of important conditions would have to be in place before any major changes could take place, he said.

"The most important thing is that we need a stable macro-economic environment, a healthy market mechanism and a healthy financial system," he said.

The premier also said policy makers must have an appropriate plan to keep the yuan stable at a "reasonable and balanced" level, while allowing the exchange rate to be more flexible.

Chinese President Hu Jintao said during a meeting with US leader George W. Bush in Chile a week ago that Beijing planned to loosen the yuan's peg -- but only under the right conditions.

"We will continue to push forward the reform on the yuan exchange rate, while maintaining overall stability in our economy," Hu was quoted as telling Bush ahead of the Asia-Pacific Economic Cooperation forum talks.

He indicated that China would seek to prevent wild fluctuations in the yuan exchange rate if and when the peg was loosened.

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