Premier confident about economy

Richard Lesser, President and CEO of Boston Consulting Group:

The Chinese renminbi devalued sharply not so long ago. Some people think this might trigger a chain reaction, and some even worry about a currency war. What is your view on this? And also now the IMF has postponed its review of the Special Drawing Rights, how do you see the renminbi globalizing in the months and years ahead?

Li Keqiang:

I wish to draw your attention to one fact: Since the formation of this government, the real effective exchange rate of the renminbi has appreciated 15 percent. As many currencies significantly depreciated against the dollar recently, developments in the international markets compelled us to adjust the quotation regime of the renminbi central parity. Yet it was a small adjustment. Overall, the real effective exchange rate of renminbi has appreciated by a large margin during the term of this government. The truth is, after the small adjustment, the renminbi exchange rate is now basically stable. There is no basis for continued depreciation of the renminbi, because the Chinese economy has been operating within the proper range, we have ample foreign exchange reserves, and surplus of trade in goods has been rising. All these show that the exchange rate can stay basically stable at an adaptive and equilibrium level. Yet as the Chinese often say, in some circumstances, one may get caught up in the middle of something unrelated.

We have no intention to boost exports by devaluing the renminbi. This is not in keeping with our policy of structural adjustment. Still less do we want to see a global "currency war". As the Chinese economy has become so highly integrated into the global economy, a "currency war" would only bring more harm than good to China. As a matter of fact, after the small adjustment of the exchange rate, I once talked about this with relevant departments and some export-oriented firms in China. They said they hope the renminbi exchange rate will remain basically stable at a reasonable and balanced level. Should there be market expectations of continued depreciation of the renminbi, these companies could hardly get any long-term export orders. How could this be beneficial for China's exports?

As you know, commodity trade makes up a large part in China's total foreign trade. Between January and August this year, China imported 220 million tons of crude oil, up by 10 percent over the previous year. Soy bean imports rose by 7 percent, and iron ore imports were over 600 million tons, more or less the same as last year. However, commodity prices have dropped significantly, with some plunging 40 to 50 percent. We have been affected as a result. There were less tariffs and hence the strains on China's public finance. But commodity prices are not something for us to decide. The total import volume has not declined, yet the value of imports has come down as a result of falling prices. Who should be held accountable for this? It is a topic that can be further discussed and debated. If international commodity prices rebound, we would get more import tariffs. This would mean more public money to spend on improving people's lives. There would be change in the PPI too, which is beneficial for improving corporate profitability and performance. This is an issue that requires joint efforts for a solution.

As for internationalization of the renminbi, it should be a market-driven process. It needs to fit China's reality of economic development and will take some time. We will gradually achieve full convertibility of the renminbi under capital accounts. One thing is certain: a continually devaluing renminbi is not conducive to the renminbi internationalization process. This is not our policy orientation. China wishes for the renminbi to be part of the IMF's Special Drawing Rights, not just to make the renminbi internationalized, but also for fulfilling China's due international responsibilities as a big developing country. China is not a source of risks for the global economy; China is a driver of world economic growth.

Thank you.