China to ‘gradually’ move to convertible yuan

Agence France Presse

Beijing, June 1:

China’s central bank chief Zhou Xiaochuan reiterated on Wednesday that Beijing will slowly move to make its currency more flexible, changes long promised to the country’s major trading partners.

“We will do these kinds of things gradually and prudently,” Zhou told a securities market conference, referring to the yuan’s peg of about 8.28 to the US dollar. “We are checking about the conditions and the impact, but this is already the direction, it’s the determined direction to move forward,” he said.

Zhou’s comments varied little from year-long similar statements made by Beijing officials. Last week Zhou said reforming the currency was a “slow business.”

The yuan is currently convertible on the current account, which generally covers trade, but is tightly controlled on the capital account or outflow of long-term capital. “With capital account convertibility, the Chinese market may have more access to the world economy, the world market,” Zhou said.

China has come under increasingly heavy criticism globally for maintaining an exchange rate that is seen as giving its exporters an unfair advantage. Beijing has repeatedly pledged to bring about greater change in its currency system to make it more flexible but it has never given a timetable and insists it will not be bullied into any move.

Zhou also expressed support for further development of the nation’s deeply troubled capital markets that are struggling at an eight-year low with severe liquidity issues related to shares owned by state enterprises.

“We sincerely hope the Chinese capital markets can move forward and further develop,” he said.

To comply with global trading rules China has moved to open up its markets under promises made to the World Trade Organisation when it joined the body at the end of 2001. One such move was the introduction of qualified foreign institutional investors nearly two years ago.