Hu to stand firm on yuan-dollar peg at APEC as China tries to

Hu to stand firm on yuan-dollar peg at APEC as China tries to
brake economy

Robert J. Saiget
Agence France-Presse
Beijing

China will loom large over an Asia-Pacific summit in Chile,
with the United States hoping that Beijing will loosen a fixed
yuan-dollar link and cool, but not freeze, its red-hot economy.

President Hu Jintao will likely reiterate to his APEC partners
China's longstanding goal of making its currency fully
convertible when they meet in Santiago this weekend.

But he is unlikely to set a timetable or detail plans to
loosen the peg, citing stability in China's markets as a top
priority, diplomats and officials said.

They said Hu will also trumpet efforts to cool down an
overheated economy to an estimated, and highly enviable, 9.25
percent growth rate in 2004, while restating the importance of
stable domestic and global markets for China to maintain
sustainable growth.

"China's foreign trade will amount to about US$1.1 trillion
this year, while the trade imbalance is estimated at less than
$10 billion, which is insignificant," Vice Finance Minister Lou
Jiwei said last week.

"Therefore, China has no need to readjust its forex rate," Lou
said in an apparent effort to set the stage for Hu before the
Asia-Pacific Economic Cooperation forum summit.

The yuan has been pegged in a narrow margin around 8.28 to the
dollar for nearly a decade, with many economists expecting China
gradually to loosen the peg soon but not to abandon it.

Critics, especially the United States, maintain the currency
is undervalued and gives China an unfair trade advantage.

China has nimbly sidestepped international calls to reform its
forex regime since they began in earnest over a year ago, by
repeatedly proclaiming its intention to do so.

In bilateral talks at APEC with U.S. President George W. Bush,
Hu is likely once again to reiterate such intentions. Diplomats
said he would urge Washington to scrap export restrictions on
high-tech equipment as a way to address a growing U.S. trade
deficit with Beijing.

China's trade surplus with the United States ballooned to more
than $120 billion last year and has been growing at a record
rate, totaling $15.5 billion in September and $15.4 billion in
August.

Chinese officials at the summit are expected to try to allay
fears of economic overheating but will likely paint a realistic
picture of severe developmental imbalances.

Since last year, Beijing has battled to rein in unruly
economic growth, especially in the construction, steel and cement
sectors. Gross domestic product has run at well over nine percent
for the past three quarters.

Concerns that tougher measures may be necessary have prompted
Premier Wen Jiabao to warn time and again of the dangers of
overheating and the need for further tightening.

The heady investment climate in the world's fastest growing
developed economy has led to further problems in China's
financial system, causing money supply to expand too fast and
compounding Beijing's difficulties in deflating a banking system
bloated with cash and eager to lend it.

Last month China raised interest rates for the first time in
nine years, the latest in a series of measures to turn down the
heat after economic hyperactivity led to severe bottlenecks in
energy and transportation.

"The macro-control measures mainly incorporate economic and
legal means, with administrative means as a supplement," Ma Kai,
head of the National Development and Reform Commission and a part
of China's APEC delegation, said last week.

"It will not hinder the rapid development of the Chinese
economy."

However, he cautioned that severe imbalances in economic
growth have traditionally appeared in China when food production
has fallen and overinvestment is rampant -- as at present.

"Ever since last year, unstable elements in the Chinese
economy have been gradually increasing. If we don't take some
action, the consequences will be dreadful to contemplate," Ma
said.