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Rising yuan not linked to Hu's US trip: c.banker

(Reuters)
Updated: 2006-03-18 16:30

Chinese President Hu Jintao's planned visit to the United States next month is not determining the quickening appreciation of the yuan, Wu Xiaoling, a deputy governor of the People's Bank of China, said on Saturday.

Asked by Reuters on the sidelines of a financial forum whether China would let the yuan rise faster ahead of Hu's trip, expected in late April, she said: "As Wen Jiabao has said, there is no link. We will use market means."

A bank clerk counts Renminbi in a bank in Haian, eastern China's Jiangsu province, March 15, 2006. China's yuan scored its biggest one-day gain to the dollar on Wednesday since its July revaluation after Premier Wen Jiabao ruled out a further one-off revaluation of the local currency yesterday. [China Daily]

Chinese Premier Wen, on Tuesday ruled out a further one-off revaluation and said the yuan would fluctuate according to market forces.

Wu said later in a speech to the forum that China needed to keep tweaking its policies to reduce the external payments imbalances that caused its foreign currency reserves to balloon to $819 billion at the end of 2005, second only to Japan's.

"China should continue to make adjustments to its foreign exchange policy of relaxed inflows combined with strict outflows, which is the source of excessive increases in foreign exchange reserves," she said.

Wu also said China would continue to promote overseas investment. Chinese companies spent more than $6 billion abroad in 2005 as Beijing encouraged firms to "go forth" in search of natural resources and markets.

The authorities would also redouble their efforts to cut off what Wu called the "irrational" supply of foreign exchange -- a reference to inflows that circumvent China's capital controls in order to speculate on property or a rise in the yuan.

The yuan gained 0.24 percent this week -- a weekly record since it was revalued by 2.1 percent on July 21 and cut free from an 11-year old dollar peg and allowed to float within tightly managed bands.

It has risen a total of 0.98 percent since then, far from enough to satisfy critics in Washington.

They say the yuan is so undervalued that it gives Chinese products an unfair advantage in U.S. markets, costing millions of lost American jobs and fuelling a record bilateral trade gap.

U.S. Senator Charles Schumer, a New York Democrat, and Sen. Lindsey Graham, a South Carolina Republican, will head to Beijing next week to hear firsthand what China is doing about its currency, before making a final decision on a bill threatening the country with a 27.5 percent import tariff.

Officials have repeatedly said that China will gradually let the yuan move more freely but that it must first develop the infrastructure of its foreign exchange market so banks and firms can hedge the risks that come with greater volatility.

To that end, Wu said China would roll out more currency derivative products as well as forward rate agreements. These let two parties manage their risk exposure by fixing a future interest rate today.