China plays down early yuan move
(Agencies)
Updated: 2005-05-27 18:46

BEIJING, China -- China has still not made enough progress to prepare its economy and financial system for a stronger currency, a senior government economist said in remarks published on Friday, while another expert also urged caution.

"It will be better to keep the renminbi's exchange rate stable for another two years," said Zhang Yansheng, head of the National Development and Reform Commission's External Economy Research Institute.

Zhang's remarks were published shortly after U.S. Treasury Secretary John Snow told Congress he was confident that China would change the yuan's decade-old peg of near 8.28 per dollar within the next six months.

U.S. law-makers and manufacturers say the peg unfairly undervalues the yuan by at least 30 percent.

But Zhang was quoted by the International Business Daily, a newspaper published by the Ministry of Commerce, as saying that the government still needed to do a lot of work in areas such as currency, taxation and foreign trade policy in order to minimise the impact of yuan reform on China's economy.

Businesses also needed to be better equipped to manage currency risks.

"The core problem we are facing now is not whether the renminbi's exchange rate is too low," Zhang was quoted as saying.

Another prominent academic, Song Hong of the Chinese Academy of Social Sciences, told the paper that the yuan should appreciate in the long term.

But he said it would be better if the currency was allowed to rise gradually and in small steps over a lengthy period.

Song, who is dean of the academy's Department of International Trade Research, also said China was not making full use of its $659 billion stockpile of foreign exchange reserves.

The reserves, which are now invested primarily in U.S. bonds, should be channeled into the development of private Chinese firms, Song said. He did not say how this should be done.

"It's quite embarrassing that China doesn't know how to use its huge reserves," the paper quoted him as saying.

Chinese think-tanks, ministries and the central bank are increasingly forthright in giving their views about the yuan, but China watchers say the decision whether to change the peg is so important it will be made by Prime Minister Wen Jiabao.