Accessibility links

Despite Pressure from US, China to Keep Currency Stable - 2004-03-11


China vows to keep its currency stable despite pressure from the United States, where some people argue the yuan's peg is resulting in the loss of American manufacturing jobs.

Chinese officials repeated the government's determination to keep its currency stable on the sidelines of the annual session of the National People's Congress.

Zhou Xiaochuan, governor of the People's Bank of China, said Thursday the decision will ensure continued economic growth. "We are clear that a smooth, healthy, sustained economic growth will contribute to currency stability in the country," he said. "And at the same time we also understand that the stability of the currency will likewise promote economic development."

The decision comes despite pressure from the United States to let the yuan float - letting its value against other currencies move depending on market forces. Many U.S. manufacturers and labor groups argue that Beijing's fixed exchange rate is keeping Chinese products artificially cheap, resulting in the loss of American jobs.

The yuan is pegged at an exchange rate of about 8.3 to the dollar. Economists say floating would raise the value of the yuan, which would make Chinese products more expensive overseas.

China's Commerce Ministry reported a trade deficit in February, its second straight monthly deficit. Exports have slowed largely because the government recently eliminated export subsidies paid to manufacturers.

Joseph Cheung is at politics professor at the City University of Hong Kong. He says Chinese leaders want to calm nervous manufacturers by showing they are determined to maintain economic stability. "Chinese authorities are now paying greater attention to the issue of financial security in China," he says. "If the Chinese yuan is seen to be fluctuating substantially, then there may be all kinds of problems, generating instability."

Professor Chung says many leaders fear that people may start engaging in currency speculation. He says leaders also worry that a stronger yuan could discourage foreign investment.

The government also said that China's major banks have improved their balance sheets by cutting the percentage of bad loans they hold more than five percent. Analysts attribute the drop to an infusion of $45 billion the banks received from China's vast foreign reserves late last year. However, some experts think the lower percentage of bad loans could simply mean the banks have made many more loans.

Many economists fear that huge amounts of non-performing loans could make the banking system unstable, becoming the single biggest threat to continued economic growth.

XS
SM
MD
LG