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Zhou Says Banks Can Cope With More Flexible Currency (Update4)
By Rob Delaney
Nov. 18 (Bloomberg) -- People's Bank of China Governor Zhou Xiaochuan said the nation's banks are ``stronger'' and can cope with a more flexible yuan.
``The Chinese financial sector has become much stronger compared with the period of the Asian financial crisis'' of 1997-1998, Zhou said during a meeting in Melbourne of the world's 20 biggest economies. This ``creates better conditions for them to accept more financial reform, including a more flexible exchange rate and interest rate liberalization.''
In September, Zhou told lenders to prepare for changes to the currency so they can better manage risk created when a stronger yuan makes exporter sales worth less in local currency terms. He said at the time that the range within which the yuan trades against the U.S. dollar would be widened ``sooner or later,'' and if the banks aren't pressured, their reforms would ``move too slowly.''
``I don't think these statements are a change in policy, but they give the markets increased potential for greater appreciation for the yuan in the next six months,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``Gradualism is still an important part of the message.''
The yuan has climbed 2.9 percent since July 2005, when China revalued it and let it trade 0.3 percent either side of the dollar on a daily basis. Rising trade surpluses with the U.S. and the European Union have prompted calls from those trading partners for faster appreciation.
European Deficit
The European Union's trade deficit with China grew 21 percent in the eight months through August to a record 55.1 billion euros ($70.4 billion), the EU's statistics office said yesterday. China is poised to overtake the U.S. this year as the second-biggest source of imports to the euro area, behind the U.K. The U.S. had a record $23 billion trade gap with China in September alone.
The yuan fell 0.04 percent to 7.8715 against the U.S. currency yesterday in Shanghai, the weakest since Nov. 7, according to the China Foreign Exchange Trade System.
China's central bank hasn't been pressured about the yuan so far at the two-day meeting, Zhou said today.
The G-20 ministers and central bankers will release a final statement tomorrow. Australian Treasurer Peter Costello said the policy makers discussed ``currency levels'' today.
`Accelerate Move'
The world's fourth-largest economy needs to ``accelerate the movement'' of its exchange rate reform, Robert Kimmitt, deputy secretary at the U.S. Treasury, said yesterday. European and U.S. officials claim China keeps the yuan undervalued to promote exports, which accounted for about 35 percent of growth last year.
China is violating international trade rules and running up a record trade surplus with the U.S. because of its undervalued currency, according to the annual report of the United States- China Economic and Security Review Commission released in Washington on Nov. 16.
China wants banks to get ready to more volatile currency trading by learning how to use derivative products that have been introduced to help manage risk.
The Chinese president, Hu Jintao, said yesterday that his government ``will further restructure the pattern of its economic growth to improve the efficiency of resource consumption and ease trade imbalances.'' Hu spoke at a gathering of company executives during the Asia Pacific Economic Cooperation summit in Hanoi, Vietnam.