China will make the yuan more flexible in either direction and its recent reforms to make the currency more market-oriented have begun to achieve some results, Premier Wen Jiabao said on Saturday.
Wen’s comments underscored Beijing’s intention to introduce two-way fluctuations in the yuan to dampen expectations that China’s currency could only appreciate.
Pointing to recent bets in overseas markets that had caused the yuan to hit the bottom end of its trading band a number of times, Wen said such fall in the yuan “could not have been engineered.”
“China will continue to closely monitor the yuan’s trading movements ... and will strengthen yuan’s trading flexibility in either direction,” Wen was quoted as saying in an evening news bulletin on state broadcaster CCTV.
Chinese leaders have repeatedly rejected calls from the United States and other rich countries to allow faster yuan appreciation.
Analysts said China appears to have quietly adjusted its currency policy in response to the deepening eurozone debt crisis, slowing the yuan’s steady appreciation while trying to nip speculation of yuan depreciation.
The balancing act comes as inflationary pressures come off the boil and economic growth slows in the world’s second-largest economy, giving Beijing more room to fine-tune policy. The central bank allows the yuan to rise or fall 0.5 per cent from its daily mid-point. Some analysts believe that China may opt to widen the yuan’s trading band only when upward pressures on the currency ease in line with a narrower trade surplus and lower capital inflows.
China’s economy is moving up the value chain and its currency could “mount a challenge” to the US dollar in five to ten years, a congressionally created commission reported recently.
Gone are the days when Beijing was content to be the low-end factory of the world, the US-China Economic and Security Review Commission said in its 2011 report to the US Congress.
China’s planners are intent on joining the realm of advanced technology products. high-end research and development and next-generation products, the bipartisan, 12-member body said in a 406-page report.
“Similarly, it no longer seems inconceivable that the RMB could mount a challenge to the dollar, perhaps within the next five to 10 years.”