China's integration into the world economy boosts chances that the world's largest consumer market will end restrictions on its exchange rate, said John Taylor, US Treasury's undersecretary for international affairs.
Since 1995, China has kept its currency, the yuan, in a narrow band around 8.3 to the dollar, a move that keeps the price of its exports low, helping fuel a US$199 billion trade surplus and luring US$308 billion in foreign investment. The country's economy grew 8 percent last year, more than three times the pace of growth in the US.
In a speech to economists in Washington, Taylor said large economies that keep inflation tame, interest rates low and allow their currencies to float without pegs have the best chance to achieve long periods of stable growth. China's economy is growing rapidly at a time when its biggest rival in Asia, Japan, has had little growth in the past decade.
"Over time, they will move toward more flexibility," Taylor said to reporters after the speech, when asked about China's fixed exchange rate. "It's really their decision about how rapidly to move, but like other countries, you have to make decisions based on the considerations at the time."
But China Premier Zhu Rongji (
"To stick to the policy is in the interests of our country," he said, according to the Xinhua news agency.
"It has effectively safeguarded the country's economic growth and financial stability and won wide appraisal from the international community."
China received kudos for its refusal to devalue its currency during the Asian financial crisis in the late 1990s, when other countries in the region engaged in competitive devaluations.
The yuan is virtually pegged to the US dollar and there are tight controls on foreign exchange.
Zhu said the yuan's stability had helped safeguard China's booming economy and called for even tighter exchange controls to maintain balance of payments and facilitate the nation's economic reforms and modernization drive.
"The stability of the yuan and the sustained increase in foreign exchange reserves are major signs of the country's improving national strength and sustained and healthy economic development," said the premier, speaking at the State Administration of Foreign Exchange.
China joined the WTO in December 2001.
Goldman Sachs Group Inc estimates that the yuan is undervalued by 15 percent.
``As there is more foreign investment, direct investment and more trade, there will be more reasons to move toward greater flexibility to prevent other imbalances than can occur,'' Taylor said.
China is growing more open to calls from Japanese Finance Minister Masajuro Shiokawa and other foreign officials to let its currency appreciate, analysts say.
The US trade deficit with China widened to US$83.1 billion in the first 10 months of last year from US$70.4 billion a year earlier.
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