China won't rush yuan reform

China will continue to reform its exchange rate policy in a gradual and controlled manner, Commerce Minister Chen Deming said yesterday.

Speaking on the sidelines of the country's annual parliament, Chen said that the government's exit from its stimulative stance last year really meant a fine-tuning of policies.

Central bank governor Zhou Xiaochuan said on Saturday that the country's stimulus exit would sooner or later spell the end of the "special yuan policy" adopted in the face of the global financial crisis.

China has effectively re-pegged its exchange rate at around Y6.83 (Dh3.67) per dollar since mid-2008.

Like Zhou, Chen said all China's financial policies, including its yuan stance, were part of China's stimulus package to prop up the economy during the global credit crunch. "Exiting from the stimulus does not mean all these measures will disappear. They will still be there, but there will be some fine-tuning," Chen said.

Asked about the standstill in the yuan since mid-2008, Chen said: "The movement and degree of stability in the yuan in times of crisis ought to be different from when there is no crisis." He added: "The direction of yuan reform will be gradual and controlled."

Turning to the outlook for Chinese exports, Chen said they would not truly recover until the global economy had put the financial crisis fully behind it. "If external demand has not recovered yet, how can we have a fundamental recovery?" Chen said. "No country can have a recovery on its own."

HSBC's chief china economist, Qu Hongbin, said stronger economic growth, a rebound in exports and the emergence of inflationary pressures supported his view that China would move away from the yuan's peg as early as next quarter.

"This is the most explicit comment on the renminbi's exit from current de-facto peg made publicly by top Chinese policymakers so far," Qu said of Zhou's remarks at the weekend.

"Yet the pace of appreciation will likely be gradual. We expect USD/CNY exchange rate at 6.50 at the end of this year," he said in a note to clients.

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