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2012-03-14 09:20:08
China has said it will allow the yuan to float more freely as part of its
efforts to reform currency policy.
The move comes as China has been facing pressure from its trading partners to
let the yuan appreciate.
Beijing has been accused of keeping the value of its currency artificially low
to help its exporters.
While Premier Wen Jiabao said Beijing will push for reforms, he added that the
yuan's value may already be close to an optimum level.
"We will step-up exchange rate reforms, especially in increasing two-way
fluctuations," premier Wen Jiabao said on the last day of the National People's
Congress meeting.
"In the Hong Kong market, NDFs (non-deliverable forwards) have started to
fluctuate both ways. This tells us the yuan is possibly near a balanced level."
'No point in predicting'
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You still have a very limited range of products to chose from if you want to
invest in China. They still need to do much, much more if they want to be a
real player in the global market
Sean Callow Westpac
China, which for many years pegged its currency to the US dollar, began to
allow the yuan to appreciate in 2005, but in a very measured way.
It has risen by almost 8% in the past 24 months against the US currency.
However, China's trading partners as well as currency analysts continue to
maintain that despite the rise, the yuan is still undervalued. This, critics
believe, gives China an unfair advantage in international trade.
"The currency has come a long way. But is still has a fair way to go," Sean
Callow of Westpac told the BBC.
Meanwhile, China has said that while it was willing to let the yuan appreciate,
a sudden rise in its value will hurt its export sector, which is already facing
a tough time as key markets in the US and eurozone experience sluggish growth.
The fear for China is that a strong currency will make its goods more expensive
to foreign buyers.
At the same time, profits of manufacturers may also be dented when they
repatriate their foreign earnings back home.
Analysts said that until Beijing feels absolutely secure about the impact of a
stronger yuan on the export and manufacturing sectors, it may continue to keep
tight controls on the currency's trade.
"We have heard it so many times that there is no point in predicting when it
will happen," Mr Callow said.
Broader role
Wednesday's announcement is being seen by some as another step in China's
efforts to promote a more international role for the yuan.
Beijing wants the yuan to be an alternative global reserve currency to the US
dollar, which analysts say will only be possible once the yuan is fully
convertible. China has taken various steps in recent months to loosen its grip
on the currency.
Last year, Beijing agreed a deal with Japan, its biggest trading partner, to
allow a direct exchange of respective currencies without first converting them
to the US dollar.
It has also approved a plan to allow one of China's largest asset managers, to
offer its Hong Kong customers the option of investing in the yuan directly by
buying stocks and bonds on the mainland.
Analysts said while these were key steps, China still needed to open up its
markets further.
"You still have a very limited range of products to choose from if you want to
invest in China," said Westpac's Mr Callow.
"They still need to do much, much more, if they want to be a real player in the
global market."