State Council vows to maintain yuan at 'basically stable' level

A clerk counts yuan bills at a bank in Huaibei, East China's Anhui province. [Photo/IC]

China pledged to keep the yuan exchange rate "basically stable" after some economists said the country's recent stock market rout threatened its financial stability and might lead to the currency's devaluation.

The yuan exchange rate with major international currencies will remain stable on a basis that the government considers "rational and balanced" in a bid to boost confidence in the currency, as China strives to join the Special Drawing Right system of the International Monetary Fund.

The SDR is an international reserve asset that supplements the existing official reserves of member countries.

The pledge came from an executive meeting of the State Council, China's Cabinet, presided over by Premier Li Keqiang on Wednesday, as part of a package of policies designed to encourage export and import, as the world's largest merchandise trader is likely to miss its annual trade target for the fourth consecutive year.

Other trade-supporting measures issued on Wednesday include expanding the import of popular consumption goods, advanced technologies and key equipment parts; the introduction of a pilot streamlined customs procedures nationwide; and the reduction of trade companies' fees.

Also on Wednesday, China's economy reported 7 percent growth in the second quarter, showing signs of stabilization.

A statement released after the meeting said conditions are "good" to reach the annual economic growth goal of about 7 percent, and leaders pledged to step up reforms in the second half of the year to prop up the economy.

China's exports picked up a stronger-than-expected 2.1 percent on a year-on-year basis to 1.17 trillion yuan ($188.4 billion) in June, although two-way trade for the first six months fell 6.9 percent to $1.88 trillion, the General Administration of Customs said on Monday.

The figure fell well below Beijing's official target for the year for trade growth of about 6 percent, and if China were to fail to reach this year's target, it would be the fourth consecutive year that the goal has been missed.

GAC spokesman Huang Songping said on Monday that the appreciation of the yuan is one of the reasons for sluggish exports.

The official exchange rate of the yuan against the US dollar in the past six months strengthened by 0.2 percent, while against the euro it strengthened 6.9 percent and against the yen, 2.2 percent.

"A weaker European economy and the depreciation of the yen have led to a continued decline in the global market," said Bai Ming, a researcher with the Ministry of Commerce.

A stable yuan would also help persuade the International Monetary Fund to grant it reserve-currency status－a decision due to be made later this year－and discourage capital outflows, experts said.