China should adjust its currency gradually, said Haruhiko Kuroda, an economic adviser to Japanese Prime Minister Junichiro Koizumi.
China fixed the yuan to the dollar at a rate of about 8.3 in 1995, spurring exports and contributing to a record US$124 billion trade surplus with the US last year. US officials have criticized China in recent months for keeping its currency pegged because they say it is undervalued and helps Chinese exporters.
"The sensible thing is to adjust the currency gradually," Kuroda said at the 41st US-Japan Business Council in Tokyo yesterday. "It is necessary for the Chinese economy to have a flexible currency regime."
Kuroda, who was in charge of yen policy as vice finance minister for international affairs for more than three years until January last year, said China should be left to decide on its currency policy, reiterating a comment he made on Aug. 27.
The IMF in its annual review of the Chinese economy in August urged the government to adopt greater flexibility in the yuan's exchange rate "without undue delay" to help deal with inflation.
Kuroda said China should be able to maintain economic growth of as much as 9 percent per annum over the long term.
He urged Beijing to reduce non-performing loans and improve corporate governance to attract investment and maintain growth.
"Prudent macroeconomic policies must be maintained," he said.
China's economy will probably expand this quarter at its slowest pace in more than a year as lending curbs and higher interest rates damp investment, the State Information Center said in a report on Nov. 6.
GDP will probably increase 8.7 percent from a year earlier after climbing 9.1 percent in the third quarter, the research agency said in its 2005 China Industry Development Report, which was released at a conference in Beijing.
That would be the smallest gain since the second quarter of this year.