China committed to stable yuan, says bank governor

By MARY KWANG
CHINA CORRESPONDENT

THE governor of the Chinese central bank, Mr Dai Xianglong, yesterday maintained that China was committed to a stable yuan, saying that only a huge international payment deficit would lead to its devaluation.

At a press conference, Mr Dai dismissed speculation that the yuan -- or renminbi as the Chinese currency is also known as -- would be devalued. He said that conditions such as a large balance-of-payment deficit or huge increases in the cost of exports did not exist this year. He added: "During the Asian financial crisis, we did not devalue the renminbi. All the more so now, there is no necessity to devalue it."

His comments follow an article on Sunday in the China Daily Business Weekly that quoted unnamed analysts as saying that a devaluation of the yuan might not be such a bad move.

Those remarks helped spark plunges in the region's stock markets on Monday.

Citing several factors for confidence in a stable yuan, Mr Dai pointed out that China's foreign reserves totalled US$145 billion (S$235 billion) at the end of last year, which exceeded the annual value of China's imports.

Last year, imports into the country totalled US$140 billion, marginally lower than the US$142 billion figure for 1997.

Mr Dai added: "The costs of exports are quite stable as well. Interest rates are relatively low and we have increased our export tax refunds in accordance with international practice.

"So, I do not think that the renminbi could be devalued or that there is any necessity for devaluation."

In an indirect reference to the article in the China Daily Business Weekly, the People's Bank of China chief said: "There are tens of thousands of experts in the financial sector in China. They all have their own point of view.

"I think most of them would agree with me that there's a solid foundation for a stable exchange rate for the renminbi. A handful of them will have a different opinion.

"I think that some of them think the renminbi would be devalued some time down the road. But these are personal views.

"President Jiang Zemin has said that the renminbi's exchange rate must be stable. Premier Zhu Rongji has said that the renminbi's exchange rate must be stable.

"I'm the person in charge and I say the renminbi will be stable. I would say these are very authoritative views."

Describing devaluation as "not a helpful policy choice", Mr Dai said that any such move would hurt the interests of foreign investors, increase the country's foreign debt burden and also jolt Asian financial markets.

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