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China to keep controversial yuan peg

"The system is weak. The structure is irrational."

Ma Kai, director of China's National Development and Reform Commission

China will keep controversial exchange-rate controls and hold down industrial investment this year as it tries to rein in surging growth and restrain inflation, officials said yesterday.

Chinese Premier Wen Jiabao (溫家寶) on Saturday announced an official target of 8 percent economic growth for this year, marking a renewed effort to cool off an expansion that last year soared to 9.5 percent, sparking fears of inflation and financial problems.

Yesterday, officials said they would tighten controls on land use, both to conserve scarce farmland and to defuse public anger over seizures of land and housing, and warned that wasteful spending and inflation could endanger China's economic boom.

The country's foreign exchange regulator defended Beijing's fixed exchange rate, which ties the yuan's value to the US dollar, rejecting charges that the controls give Chinese exporters an unfair price advantage.

Accusations that China is manipulating the exchange rate to help its exporters are "completely a rumor," the official Xinhua News Agency quoted Guo Shuqing (郭樹清), director of the State Administration of Foreign Exchange, as saying in an interview.

China's trading partners, especially the US, have pushed Beijing to let the yuan trade freely, arguing that its value is up to 40 percent too low and hurts foreign competitors.

Chinese leaders say they plan to eventually relax foreign exchange controls, but say that doing so now would cause financial turmoil and hurt the country's banks.

Also yesterday, an official in charge of economic reform warned of dangers from excess industrial investment and complained that the power-generation industry in particular suffers from severe problems.

"The system is weak. The structure is irrational," Ma Kai (馬凱), director of the National Development and Reform Commission, said at a news conference held during the annual meeting of China's legislature. "All these problems are yet to be resolved."

Ma noted that excess investment in construction and factory projects remained a risk, noting that 150,000 building projects were started last year, with 20,000 of them launched in December alone.

"There are new problems cropping up as we go along," he said.

Along with credit controls the government will limit approvals for land use, said Li Yuan (李元), deputy minister of China's Land and Resources Ministry, who appeared at the news conference with Ma.

Meanwhile, government advisors are pushing for an economic zone facing Taiwan in hopes of building closer ties and paving the way for peaceful unification, state media said yesterday.

The idea of building the zone, which would cover Fujian, Zhejiang and Guangdong provinces, was broached several years ago and is now gathering steam, the China Daily said.

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