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China to keep currency stable

The central bank offers few details after its fourth-quarter meeting, despite U.S. pressure on Beijing to float the yuan.

December 26, 2006|From the Associated Press

BEIJING — China will keep the value of its currency, the focal point of trade disputes with the United States, at a stable level and will act to curb investment growth, the central bank said Monday.

The statement by the People's Bank of China came less than two weeks after a high-profile U.S. visit to China failed to win solid pledges from Beijing on floating the yuan and slowing a soaring trade gap.

The bank "believed that China should ... actively expand domestic demand, reasonably control the growth of investment and improve the trade balance," said the statement on the bank's website, issued after a fourth-quarter meeting on monetary policy.

China has been under pressure to do something about the value of its currency. Many politicians in Washington and U.S. business leaders say Beijing keeps the yuan undervalued, giving its exporters an unfair price advantage and hurting foreign companies.

The U.S. trade deficit with China is on track to hit $229 billion this year, up from last year's record $202 billion.

The U.S. visit this month, headed by Treasury Secretary Henry M. Paulson Jr. and including Federal Reserve Chairman Ben S. Bernanke, ended with China saying it would pursue currency flexibility, but it gave no timetable or details.

Monday's four-paragraph central bank statement was similarly noncommittal, saying, "The meeting also believed that China should continue to implement prudent monetary policy, keep price stability, reasonably control credit growth and keep the basic stability of the currency rate of the yuan."

In July 2005, China revalued the yuan, raising it 2.1% to 8.11 yuan per dollar. Since then, the yuan has gained about 3.5% against the dollar, but U.S. officials say that is not enough.

Chinese leaders say they want to encourage domestic consumption to reduce the country's dependence on export-driven manufacturing industries and investment, but retail sales and other measures of consumer spending are growing much more slowly than exports.

China says its global trade surplus this year should be at least $168 billion. Beijing's overall surplus is smaller than its gap with the U.S. because China runs deficits with other countries.

Economists say that such imbalances cannot continue and that they threaten the stability of the world economy.

Thailand's finance minister, Pridiyathorn Devakula, on Sunday also called for China to allow its currency to rise against the dollar, saying the weak Chinese currency hurt its export competitors.

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