China's top foreign-exchange regulator reaffirms commitment to currency reform

BEIJING (AP) - China will push ahead with foreign-exchange reforms and allow the market to have more influence over its currency, the country's top foreign exchange regulator said in remarks published Monday. China "will take steps to perfect the (yuan) exchange rate mechanism, raising the exchange rate's ability to reflect market supply and demand," Hu Xiaolian, director of the State Administration of Foreign Exchange, wrote in the latest edition of the bimonthly Qiushi Magazine, a mouthpiece of the Communist party.

Hu, who is also a vice-governor of the People's Bank of China, the central bank, reiterated that the basic stability of the yuan exchange rate will be maintained at a reasonable and balanced level.

While Hu's commentary reiterates long-standing policy, its publication is likely meant as a reassuring signal to international investors and foreign governments. President Hu Jintao travels to the U.S. this week at a time when Washington is sharply critical of Beijing's currency policy.

President George W. Bush, who meets Hu on Thursday, last week said he would hold China accountable to fair trade policies, especially on the yuan, which the U.S. says is undervalued, making Chinese exports less expensive.

China has kept the yuan virtually tied to the U.S. dollar for most of the decade. China dropped the yuan's direct link to the U.S. dollar in July and switched to a more flexible exchange-rate based on a group of foreign currencies. But Beijing has let the yuan rise by only about one per cent against the dollar since a two per cent revaluation in July.

Last week, China said it will sharply increase the amount of foreign currency that companies and individuals can take abroad and opened up new options for Chinese to invest overseas.

Though overall the measures should make the yuan more responsive to market forces, economists said the short-term effect could make the yuan weaker, not stronger against the dollar.

© The Canadian Press, 2006