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Thu, Feb 19, 2009 - Page 10 News List

China promises to maintain a steady currency exchange

AP AND AFP , BEIJING

China promised yesterday to keep its exchange rate stable and said it would use part of its US$1.95 trillion in foreign currency reserves to boost imports and consumer spending to combat the global financial crisis.

Chinese exporters that face plunging sales want the yuan devalued to make their goods cheaper abroad. But economists say they see no sign Beijing will take such a step, which could fuel tensions with its trading partners.

“We will maintain the basic stability of the renminbi exchange rate at a reasonable and balanced level,” Deng Xianhong (鄧先宏), a deputy administrator of China’s State Administration of Foreign Exchange, said at a news conference, referring to the currency by its official name.

“The important thing is to prevent the exchange rate from making big fluctuations,” he said. “This will not only be good for China and the world but also will be good for tackling the international financial crisis.”

The yuan was allowed to rise by about 21 percent against the US dollar from the middle of 2005 until the middle of last year in government-controlled trading, but it has held steady since July at about 6.85 to the US dollar.

Economists say a weaker yuan would do little to boost Chinese exports because demand abroad is too weak. They say a devaluation could cause serious repercussions, triggering a round of similar moves by other exporters and straining global trade relations at a time when coordinated action is needed to revive trade and finance flows.

Beijing is also looking at how to use its foreign reserves in its effort to boost consumer spending and imports, said Fang Shangpu (方上浦), another deputy administrator of the foreign exchange agency.

“We will step up support for the government’s policy of increasing imports and boosting domestic demand,” Fang said.

He gave no details, but said the agency would also ease access to financing for “enterprises that are going to make outward investment.”

China’s reserves, the world’s largest, rose by US$417.8 billion over the course of last year, but the growth slowed sharply toward the end of the year. Its forex reserves reached US$1.95 trillion by the end of last year.

Deng said some foreign companies were pulling money out of China because of financial demands elsewhere amid the global crisis. But he said the capital outflow was “very limited” and the government had the capacity to cope with it.

“By the end of 2008, the national foreign exchange reserve assets on the whole were kept safe,” Deng said. “We provided abundant liquidity [for the country] to cope with the crisis and at the same time we also made some profits.”

However, he warned that the financial crisis had not yet bottomed out and its negative impacts would continue to be felt.

“China holds nearly US$2 trillion in foreign exchange reserves that is [exposed] to the international market. It certainly faces grave challenges,” Deng said.

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