China will keep its currency stable despite pressure from a sliding Japanese yen, central bank chief Dai Xianglong said Tuesday in Beijing.
"The Renminbi's value is underpinned by China's sufficient foreign exchange reserves and favorable trade surplus," Dai, governor of the People's Bank of China, told a press conference.
But he urged the Japanese Government to take measures to stabilize the yen, whose rapid slump in value is putting pressure on currencies of its Asia neighbors, including the Renminbi.
Dai said Japan's economic fundamentals are able to keep its currency strong. The yen can be supported by the country's "powerful economic strength" and its hefty foreign exchange reserves which are the world's largest and still growing.
The yen depreciated by about 15 per cent between September and December. It hit a 39-month trough of 133.37 against the US dollar last Wednesday.
Advocates for the weak yen cited Japan's lackluster economic growth, an argument that failed to convince Dai.
Japan's economy is weak, but so is the US economy and in fact the global economy has been in a downturn, he noted.
The yen's slide and the Japanese Government's nonchalance towards the issue has raised concern among Asian countries, which fear a slumping yen could lead to falls in the value of their own currencies.
"We hope the Japanese Government will heed views of Asian countries and maintain stability of the yen,'' he said.
"We would not like to see the scenario that the Japanese yen's depreciation lead to an all around slide in Asian currencies.''
The yuan closed at 8.2768 to the dollar Tuesday, firmly near the strong end of its thin trading band of 8.2760 to 8.2800 that the central bank would like to see.
The yen was trading at around 131.6 per dollar Tuesday.
Dai said China would make progress towards full convertibility of the Renminbi but did not give details.
"The exchange rate formation mechanism will be improved while a stable exchange rate is maintained,'' he said.
Renminbi is now convertible only on the current account, which mainly covers trade, but not convertible on the capital account, which covers capital flows.
"Better management of the current account will be accompanied by progress in capital account convertibility,'' he said.
China's foreign exchange reserves rose US$46.6 billion to US$212.2 billion by the end of last year, making them the second largest in the world behind Japan.
Dai said the central bank will allow domestic joint-stock banks to let foreign banking houses own as much as 25 per cent of their shares to enable the Chinese institutions introduce advanced banking management technology.
He also said the central bank will push for a fundamental shake-up of the country's wholly State-owned banks to prepare them for the challenges brought about by the country's entry to the World Trade Organization.
State banks will be replenished with capital, their corporate governance will be strengthened and the financial sector will work hard to solve their problem of non-performing loans, he said.
(China Daily January 16, 2002)