Zhou: China will diversify reserves
(Reuters)Updated: 2006-11-14 14:48
Growth slowdown
Speaking on a panel with the world's leading central bankers in Frankfurt, Zhou said that a mushrooming trade surplus meant China needed stronger policy adjustment both on the yuan and through boosting internal demand. But he said any changes to the yuan would be gradual to avoid unbalancing the domestic economy.
He also said the Chinese economy was showing signs of slowing and declined to talk of further interest rate rises at this stage.
China depegged the yuan from the dollar in July last year, allowing for a 2.1 percent revaluation. It has since appreciated more but many analysts say it is still greatly undervalued, given China's trade surpluses and foreign capital inflows.
"The reason why we adopt a gradual approach for exchange rate reform is because China has a very large amount of labor working in the trade-related sector," Zhou said.
"So we have to consider this. We should avoid too much or too sudden closing-down or bankruptcies of enterprises and laying-off of workers.
"We are trying to manage to adjust the balance of payments and meanwhile to keep domestic economy in the good (state)."
China is growing at its fastest pace since 1995, driven by a boom in exports and investment that is feeding on cheap money, but Zhou expressed satisfaction that the pace of growth was easing from the first quarter's 11.3 percent.
"It has already slowed down to some extent so we have reached the expected result of macro-economic adjustment," he said.
In August China raised interest rates for the second time in four months to help tame a boom in credit and investment than some fear could end in a hard landing for the economy.
Asked whether or not rates will rise further, Zhou said: "It is not convenient to say right now."
The central bank was also waiting to see the impact of the increase in bank reserve requirements, tightened by half a percentage point last week for the third time in five months.
Zhou brushed off a jump in China's trade surplus to $23.83 billion in October, a third more than economists had forecast.
"Recent trade surpluses to some extent are related to season because now it's close to Christmas... We should observe average monthly trade surplus," Zhou said.
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