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    Central bank wants a stable currency
Zhao Renfeng
2005-08-05 06:01

"Overall, the reform of the renminbi exchange rate is beneficial for the macro-economy, enterprises and people's living standards," said the central bank, explaining that the rising value of the renminbi means people's wealth appreciates.

It also helps expand the nation's imports and lower the exports, which is conducive to reining in the too-rapid growth of China's trade surplus and foreign reserves, said the central bank.

A stronger currency will undoubtedly put pressure on export-oriented enterprises and lead to short-term pain, the central bank admitted.

But enterprises are urged to explore the growth potential and apply new adjustments to the challenges.

Stephen S. Roach, chief economist and director of global economic analysis at Morgan Stanley, said China's long-awaited currency adjustment is unambiguously positive for the global economy.

"Yes, it is a first step and a tiny one at that. But it qualifies China as an active participant in global rebalancing. Up until now, the Chinese were on the outside looking in. That was a recipe for increased trade frictions and protectionism a hugely destabilizing risk for an unbalanced world," he said.

"China's move on the currency front diminishes those concerns and could well provide an important kick-start to a long-dormant global adjustment process."

China's broad money supply, or M2, which covers cash in circulation and all deposits, grew steadily at 15.7 per cent on a year-on-year basis in the first half of this year, also according to yesterday's report.

The growth rate was 1 percentage point higher than was recorded by the end of last year, but 0.5 percentage points down compared with the same period last year.

"It basically applies to the demand in keeping a sustainable economic development," said the central bank.

The central bank anticipated that in the second half of this year the economy will maintain stable and relatively fast growth, but added that the outlook for the export sector is uncertain due to rising trade frictions.

Consumer price index, which grew at 2.8 per cent in the first quarter and 1.7 per cent in the second, is expected to fall further in the third quarter.

This follows a trend since early this year, but it will rebound in the fourth quarter.


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