China's PM insists on 'stable' yuan

China's PM insists on 'stable' yuan

Cindy Sui, Agence France-Presse/Tianjin, China

Chinese Prime Minister Wen Jiabao on Sunday insisted China should maintain a "stable" yuan, arguing the time was not right for yuan flexibility, countering growing pressure from the United States.

Wen told a gathering of Asian and European finance ministers a "basically" stable yuan exchange rate was in the interests of both China and other nations.

"Keeping the yuan exchange rate basically stable at a reasonable and balanced level is in the interest of economic development not only in China but also in neighboring countries and in the region as a whole and contributes to world financial stability and expansion of trade," Wen said.

He was speaking at the annual Asia-Europe Meeting (ASEM) of finance ministers in the northern Chinese city of Tianjin.

The yuan has been pegged around 8.28 to the U.S. dollar for a decade, giving rise to growing chorus of complaints from countries believing the Chinese currency is now too cheap and gives the nation's exporters an unfair advantage.

Fending off pressure, the Chinese premier said every country was entitled to choose an exchange rate mechanism suitable for its own conditions.

He said China's exchange rate reform would have to take place based on an "independent initiative" from Beijing, in a controlled manner and as a result of a "gradual process," warning against "undue haste."

"By 'independent initiative,' we mean to independently determine the modality, content and timing of the reform in accordance with China's needs for reform and development," Wen said.

"We must take into consideration both the present needs and the future development and guard against undue haste."

Wen acknowledged China needed to develop a more market- oriented and flexible exchange rate system, but cautioned that since any reform will have far-reaching impact, "it still requires a great deal of preparation."

China must first take into account the possible impact on the country's macro-economic stability, economic growth and job market, as well as the state of its financial system, he said.

Other factors include the level of financial regulations, resilience of the enterprises and effect on foreign trade as well as the economic and financial performance of other countries, he said.

"We must push forward the reform but always stay on top of the challenges, so as to prevent fluctuations in the financial market and economic instability," Wen said.

He said China's attitude was "responsible" and will be beneficial to China's and the global economies.

China has been under heavy pressure from the U.S. and sometime Europe to ease the peg.

Washington has blamed the yuan's peg on its ballooning trade deficit with China. Two U.S. senators are sponsoring a bill that would slap a 27.5 percent tariff on Chinese imports if Beijing does not take meaningful steps to revalue the yuan.

Japan's finance minister Sadakazu Tanigaki urged China to adopt yuan flexibility "sooner rather than later" during a meeting with his Chinese counterpart on the sidelines of ASEM on Saturday.

European finance policy makers, however, indicated Sunday they were beginning to support China's view.

"I think it's up to the Chinese authorities to decide at what base and when they will adopt decisions in that direction," said Joaquin Almunia, European Commissioner responsible for economic and financial affairs.

"I think they are perfectly cognizant of what are the demands of the other main economies of the world, what are the needs of other economies, but they are in charge of the Chinese economy and they know perfectly well what to do and when to do it."

Wen on Sunday also called for Asia and Europe to pool efforts and adopt policies to "maintain the stability of the major reserve currencies, curb big fluctuations in oil prices and prevent the rise of trade protectionism in all forms."