Renminbi (RMB) appreciation swirled around the country in recent days, but the State Administration of Foreign Exchange (SAFE) Tuesday said that it was groundless, People's Daily reported by quoting words of an official.

The SAFE spokesman gave following reasons:

Firstly, while it is the purpose of China's reform to improve its exchange rate regime, the progress of the reform depends on the country's economic development and operation, balance of international payment and other relevant measures. It is regarded as a systematic project which can only consummated through steady and persistent efforts instead of any one-stroke attempt. And there is no timetable for that.

Secondly, the kernel of a perfect exchange rate mechanism is to have the exchange rate more market-oriented and flexible. It is rather simplistic to adjust exchange rate. So it is neither wise nor possible to revalue RMB only once.

Thirdly, as it is China's own discretion to improve its exchange rate system, the country sees necessity of taking the real situation of China's society and economy into consideration and avoid violent fluctuation of RMB exchange rates. Keeping RMB basically stable and in equilibrium at a reasonable level not only favors a sustainable healthy development of China's economy and society, but also the stability of the world's economy and finance.

Lastly, in the long run, RMB exchange rates can either rise or decline if they get more flexible. A single way of movement is not likely. Market expectation and interest spread both have direct bearing on the pressure of RMB appreciation.

However, any sensible analysis will show that market expectation is always subject to changes and interest spread tends to narrow or even reverse with interest rates in the world market getting higher. In this case, even capital may change its direction of flow. So any speculations on RMB appreciation can be dangerous.

In his conclusion, the spokesman noted that, given the strict control on the capital account in China, any influx or outflow of capital in massive amount would be put under very close watch and stringent management.

(People's Daily October 13, 2004)