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China Seeks to Ease RMB Revaluation Pressure

The Chinese government will not likely allow its currency, the yuan or Renminbi (RMB), to appreciate by a fairly big margin, and instead, is seeking to alleviate mounting pressure from overseas.

Since a major reason demanding the revaluation of the yuan is that China's foreign exchange reserves grew too fast to as much as US$346.5 billion at the end of June, one of the ways the Chinese government chose to help easing the pressure in this regard is to satisfy the demand for more foreign currency from domestic enterprises and individuals.

The State Administration of Foreign Exchange (SAFE) announced on Monday that beginning Oct. 1, each Chinese resident may purchase foreign exchange worth US$3,000 for each trip abroad, much higher than the current limit of US$2,000. The amount for those who will stay abroad for half a year or longer will extend to US$5,000.

Earlier, China allowed enterprises engaged in international contractual projects, international contractual labor service and overseas shipping to retain all foreign exchange (forex) income on their own bank accounts.

"We will continue to take a series of positive measures to loosen appropriately control on enterprises keeping their foreign currency, enlarge the sphere of forex supply and address earnestly the demand for rational use of foreign currency from enterprises and individuals," a senior SAFE official told Xinhua.

Zhou Xiaochuan, governor of the People's Bank of China, or the central bank, disclosed Wednesday that the Chinese government supported all categories of enterprises in investing and doing business overseas, and foreign-funded firms are allowed to collect money directly from China's capital market.

International financial institutions were permitted to issue bonds in China, he said.

And China's immigrants and non-Chinese citizens were allowed to change their assets in China into foreign currency and then send them overseas, Zhou added.

The QDII regime, which opened a channel for domestic investors to enter the Hong Kong stock market, should be pushed forward at the earliest possible date, said Prof. Yi Xianrong, a prestigious financial expert with the Chinese Academy of Social Sciences (CASS).

But a number of experts proposed to rather wait, until systematic drawbacks and other problems in China's two stock bourses, in Shanghai and Shenzhen, were addressed properly and market conditions matured.

Increased imports and the maintenance of the balance of international revenue and expenditure were also being taken into account by relevant state departments, and the SAFE has vowed to encourage imports appropriately to spur industrial upgrading and economic restructuring, which will cost China more foreign exchange reserves.

China's entry into the World Trade Organization (WTO) has brought large amounts of foreign goods into the country and lowered the country's trade surplus.

Noted economists foresee that China's trade surplus will stand at five to ten billion US dollars this year, far below the US$30 billion for 2002.

China's exports, basically being labor-intensive goods, account for just five percent of the world's total. They could not cause deflation or worse economic impacts on Japan and the United States, experts acknowledged.

These countries have long blamed China for keeping the RMB exchange rate at a low level to maintain its trade surplus.

China is now implementing a regulated and floating exchange rate regime based on market demand and supply, making the RMB yuan basically stable.

Zhou Xiaochuan, governor of the central bank, said China would continue to move toward the goal of making gradually the yuan a convertible currency, but the process would "take a fairly long period of time".

(Xinhua News Agency September 4, 2003)

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