No rush on yuan reform
(Agencies)
Updated: 2005-01-30 10:58

Senior officials attending the World Economic Forum said currency reform steps would come eventually but the world would have to wait for China to take them at its own, gradual pace.

For over a year now, top industrial nations have been urging China to let its yuan currency strengthen to help balance global growth and resolve a massive US current account deficit.

"The world economic imbalance is attributable to many reasons, but not the exchange rate," Li Ruogu, China's deputy central bank governor, told the World Economic Forum. "China has not the capacity to address that so-called imbalance. We are not willing to do it, and we are not able to do it."

A more flexible exchange rate for China, along with dollar weakness triggered by US trade and fiscal deficits, will be hot topics at a G7 meeting starting in London on Friday. China's central bank officials and finance minister will attend.

Huang Ju, China's vice-premier in charge of financial and banking issues, told the Davos gathering that before acting on exchange rates, China needs to make further progress on cleaning up its ailing banking system and opening up its capital markets.

"We do not have a specific time frame," Huang said. "To improve the exchange rate mechanism, we have to maintain the exchange rate at a reasonably stable level."

He added any adjustment to the currency peg would come in a "gradual, steadfast" manner.

But a top European central banker said China need not wait to complete its financial market reforms before acting.

"It is true we need to strengthen financial markets. But that does not rule out that you may realign parities," said Bundesbank President Axel Weber, who will attend next week's G7 meetings.

China's central banker Li, however, pointed to no need for an FX move soon. He said there were no signs that China's economy, which grew by over 9 percent last year, was seriously overheating, and went as far as ruling out another increase in official lending rates for the time being.

He said any rate rise now would make it more difficult to create enough jobs for the millions of migrant workers and poor farmers moving to China's cities every year.

"So far data does not give us strong reasons for further interest rate increases at this point," said Li. The central bank had increased official lending rates modestly last October, the first such move in nearly a decade.

"There's a tremendous task to make people have jobs, therefore a certain growth rate is extremely important. Our goal is to keep the economy growing at roughly 8 percent," Li added.

UNDER PRESSURE

While Asian officials have said they worry that floating the yuan too soon might undermine the still-fragile Chinese banking sector, China has come under immense pressure from the United States and Europe to allow its currency to appreciate.

They have urged China to loosen its currency, which is pegged at about 8.28 to the US dollar.

US Treasury Undersecretary John Taylor told the Forum that China was taking steps toward currency reform, such as developing futures markets.

European Central Bank President Jean-Claude Trichet told the gathering of business and political leaders that the euro's recent strength was hurting growth in the 12-nation euro zone.

Business leaders, however, indicated that they saw no immediate end to the dollar's slide.

Bill Gates, founder of Microsoft and the world's richest man, said he was expecting the dollar to fall further.

"The old dollar, it's going to go down," he said.

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