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China Says Currency Reform Measures May Come Unexpectedly


Chinese Prime Minister Wen Jiabao repeated assertions that Beijing has been making for months. He said China eventually plans to let its currency, the yuan, trade freely.

He told reporters at the close of China's annual legislative session Monday said Beijing has set no schedule to changing the yuan's peg to the U.S. dollar.

"As to the timing, the reform measures to be adopted may come unexpectedly," he said.

The United States, the European Union and other governments have pressed China to speed up currency reform. They argue the current peg, at about 8.3 yuan to the dollar, is too low and makes Chinese products artificially cheap on world markets.

Without naming names, Mr. Wen criticized those who have been pushing Beijing to float the yuan, as not understanding the risks a revaluation would bring. He said, however, that China does not want to upset relationships with its trading partners.

"Some people strongly demand that we raise the yuan's value but they haven't given much thought to what sort of problems would ensue," he said "We are a responsible country."

China has been reluctant to move quickly on currency reform, fearing a drop in exports may drive up unemployment. Also, there are fears that a stronger yuan could create problems for China's already weak banks.

However, analysts say Mr. Wen's remarks indicate leaders realize they need to start moving more quickly.

"I think they realize that this can't go on forever," said Paul Coughlin, managing director for Asia at the credit ratings agency Standard & Poor's. "The current arrangements and the inflows of cash into the Chinese banking system are getting to the point that it's becoming destabilizing. So I think in their own self-interests, they'll look to moderate their position and adopt a slightly different tactic."

Analysts say they do not expect China to float its currency, but rather take measures such as widening the range it trades in, or switching the peg from the dollar to a basket of currencies.

They say such measures would likely result in only a moderate appreciation of the yuan, meaning the impact on China's foreign trade could be minimal.

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