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Beijing: China will adopt a mix of measures aimed mainly at boosting domestic consumption to help rebalance its blistering economy, rather than letting the yuan rise sharply, a senior central banker said yesterday.
China sees an urgent need to make policy adjustments as it faces escalating trade frictions with the United States and other trade partners in response to its ballooning trade surplus, said Yi Gang, assistant governor of the People's Bank of China.
"Our overall adjustment strategy is to adopt a mix of tools, rather than solely depending on foreign exchange rate changes, to rebalance the economy, which is our conclusion," Yi told a financial forum.
Exchange rate
He reiterated the central bank's long-standing position that it will keep the yuan basically stable but gradually allow its exchange rate regime to be more market-driven.
The tools at Beijing's disposal included steps to strengthen domestic demand, further open the country's market, increase imports, encourage outbound investment and promote urbanisation, the official said.
Adjustments to the yuan's exchange rate and steps to increase production costs so as to blunt Chinese products' edge in global markets will also facilitate the rebalancing of growth, Yi said.
China revalued the yuan by 2.1 per cent in July 2005 and replaced its hard dollar peg with a float within managed bands.
The currency has now appreciated another 7.3 per cent - but that is still not enough to satisfy critics who say Beijing keeps it artificially low to give its exporters an unfair advantage. "Judging by the purchasing power parity of currencies, it is true that most Asian nations' currencies are somewhat undervalued," Yi said.
But he noted that China was not only steadily letting the yuan appreciate, but was also adjusting the prices for manufacturing inputs.
Yi conceded that letting the yuan strengthen sharply would indeed work more quickly than price adjustments to help upgrade industry, promote innovation and boost imports.
"But there are concerns that a sharp yuan rise will pose a negative impact on exporters and employment," he added.
Steps taken to date to adjust prices for some inputs and to curb inefficient and polluting factories would gradually show positive results, Yi said.
The government will continue to raise the bar for companies in the areas of environmental protection, pollution and treatment of workers, Yi added.
Challenges ahead
On the current economic situation, the central banker said that China faced many challenges including racing growth, increasing inflationary pressures, a surging trade surplus and booming capital spending and credit expansion.
But he said that he was confident authorities would be able to make growth more balanced by adopting the mix of tools including boosting domestic consumption, steadily adjusting the yuan's exchange rate and raising production standards and costs.
China is facing escalating frictions with its trade partners in response to its ballooning trade surplus.
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