10/01/2004, 00.00
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China participates in G7 meeting

Beijing (AsiaNews/Agencies) - All eyes are on China's Finance Minister Jin Renqing and People's Bank of China Governor Zhou Xiaochuan participating in the G7 gathering beginning in Washington later today.

Their first formal attendance at the G7 finance ministers' meeting has led to speculation on changes in China's currency peg to the dollar and the interest rate rise.

Earlier this week, Premier Wen Jiabao pledged to push ahead with reform of the yuan and to make the exchange rate mechanism more attuned to market supply and demand, according to reports from Reuters and Dow Jones in Beijing. 

Premier Wen mapped out an approach that may see continued promise of gradual reform.  He provided a list of preconditions before the yuan exchange rate regime could be fully liberalized.  These included macroeconomic performances, international balance of payments, the progress of financial sector reforms and the economic and financial situation of neighbouring countries and the world. 

The Chinese Government has earlier this year taken a number of macroeconomic measures to cool off the "overheated" economy.  These measures include raising the bank reserve ratio, crackdown on loans to property and construction projects, and writing off uneconomic investments at various provincial levels.

Although such use of administrative controls has received mixed reactions from economists, many of them advocated China's switch from an administrative approach towards a more market-based approach, "the tightened monetary policies introduced so far have been effective", according to a statement posted on the People's Bank of China website. A number of recent economic data confirms PBOC's confidence that China's economy is on course, hence an increase in interest rates for the first time in nine years is not necessary.  Some analysts still contended that China's economy is still not yet under control.

China has been under pressure from the G7 to loosen its heavily regulated currency system, which effectively pegs the yuan to the dollar.  Such currency peg provided China unfair trade advantage on its exports. Analysts generally expect that the participation of Mr Jin and Mr Zhou at the G7 meeting could protect China from criticism in the final G7 statement.

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