China to gradually change exchange-rate mechanism

Beijing: President Hu Jintao said that China will move gradually and independently in making changes to the nation's exchange-rate mechanism as talks with the US opened in Beijing yesterday.

China will continue to "steadily advance" reform "under the principles of independent decision-making, controllability and gradual progress," said Hu, 67, echoing language in a May 10 central bank outlook for policy making.

US Treasury Secretary Timothy F. Geithner said yesterday that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation's growth model.

So far, China has resisted calls from trading partners to let the yuan strengthen after maintaining a peg of about 6.83 to the US dollar for 22 months as a crisis policy.

Signal of change

Hu is "sending a signal" that China is working on the currency issue even if the nation isn't yet ready to announce a policy shift, Frank Lavin, a former US undersecretary of commerce, said on Bloomberg Television in Hong Kong yesterday.

"They are trying to say we know this is high on your agenda."

"There's a strong political requirement" for China to take steps to allow yuan gains "in the next few months," said Lavin, an Asia-Pacific chairman for public relations firm Edelman.

Zhang Xiaoqiang, vice chairman of China's National Development and Reform Commission, said the currency's exchange rate wasn't mentioned in talks yesterday morning between officials including central bank governors Zhou Xiaochuan and Ben S. Bernanke.

Policy

China hasn't changed its yuan policy, Zhang added at a press briefing.

Both nations' representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn't solid and Europe's sovereign-debt crisis has added to uncertainties, Zhang said.

Yuan forwards fell 0.1 per cent yesterday afternoon in Beijing, extending last week's slump, which was triggered by speculation that China may defer appreciation as Europe's woes threaten to derail the global recovery.

The contracts indicate that investors expect the Chinese currency to gain about 1 per cent against the dollar in the next year.

The Shanghai Composite Index jumped 3.1 per cent yesterday, the biggest gain since November last year, on speculation that the government may delay more economic tightening measures.