President Hu Jintao said that China will move gradually and independently in making changes to the nation’s exchange-rate mechanism as talks with the US opened in Beijing today.
China will continue to “steadily advance” reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making.
US Treasury Secretary Timothy F. Geithner said today that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. So far, China has resisted calls from trading partners to let the yuan strengthen after maintaining a peg of about 6.83 to the US dollar for 22 months as a crisis policy.
Hu is “sending a signal” that China is working on the currency issue even if the nation isn’t yet ready to announce a policy shift, Frank Lavin, a former US undersecretary of commerce, said on Bloomberg Television in Hong Kong today. “They are trying to say we know this is high on your agenda.”
“There’s a strong political requirement” for China to take steps to allow yuan gains “in the next few months,” said Lavin, an Asia-Pacific chairman for public relations firm Edelman.
Exiting crisis policies
Zhang Xiaoqiang, vice chairman of China’s National Development and Reform Commission, said the currency’s exchange rate wasn’t mentioned in talks this morning between officials including central bank governors Zhou Xiaochuan and Ben S Bernanke. China hasn’t changed its yuan policy, Zhang added at a press briefing.
Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said. Still, Zhou told reporters that “the general analysis is the pace of the global economic recovery will be maintained.”
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The Shanghai Composite Index closed 3.5 per cent higher, the biggest gain since October, on speculation that the government may delay economic tightening measures.
Yuan forwards were little changed as of 5:24 pm in Hong Kong, trading near their weakest since September.
The contracts slumped last week on speculation that China may defer appreciation as Europe’s woes threaten the global recovery. They now indicate that investors expect the Chinese currency to gain about 1 per cent against the dollar in the next year.
Yuan’s trading band
Li Daokui, an academic adviser to the Chinese central bank, said today that some progress in the nation’s currency reform “in the near future” would make political sense. He advocated widening the yuan’s trading band and a “slight” gain against the dollar. Li said the comments to Bloomberg Television in Beijing were a personal view.
As the two-day Strategic and Economic Dialogue began, Geithner said that the US and China shared the goals of a more balanced world economy and stronger economic ties.