China's Zhou says progress made in preparing for forex reform

Asian Economic News, Feb 7, 2005

BEIJING, Feb. 6 Kyodo

China's central banker believes that China has made ''substantive progress'' over the past year in preparing for reforms in the country's exchange rate regime, according to a report by the official Xinhua News Agency.

The report dated Saturday from London came after People's Bank of China Governor Zhou Xiaochuan attended a meeting with financial leaders from the Group of Seven nations, in which China's dollar-pegged foreign exchange policy was discussed.

Xinhua quoted Zhou as saying in an exclusive interview that China has made efforts to prepare commercial banks for a more flexible exchange rate in the future and relaxed foreign exchange controls as part of the preparations.

The country has also improved its domestic foreign exchange market to familiarize its financial institutions and businesses with the environment of an open foreign exchange market, Xinhua quoted Zhou as saying.

As for the timing of the reform, Zhou said it will be ''in accordance with the need of China's overall economic reform,'' according to Xinhua.

China currently keeps the yuan pegged in a tight range of about 8.28 to the U.S. dollar.

U.S. officials have said the yuan is undervalued and gives Chinese products an unfair trade advantage in global markets. European officials, for their part, have stepped up calls on Asia, particularly China, to let their currencies appreciate to share the burden of the dollar's weakness.

In the interview, Zhou denied that the yuan is significantly undervalued, arguing that China's international trade balance shows only a modest surplus, according to Xinhua.