Chinese premier rejects faster currency rise

AP News
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Posted: Mar 13, 2011 11:34 PM
Chinese premier rejects faster currency rise

China's premier on Monday ruled out allowing a faster rise in the value of its tightly controlled currency to fight surging inflation, citing the danger of possible job losses and the impact on Chinese businesses.

At a news conference, Premier Wen Jiabao repeated Chinese complaints that the U.S. Federal Reserve's efforts to spur American growth are partly to blame for global inflation, though he avoided mentioning the Fed by name.

Wen said Beijing is taking steps to rein in surging inflation that pushed up consumer prices by 4.9 percent in February.

But he said the yuan's rise against the U.S. dollar would be kept gradual. Analysts say a stronger yuan would cool Chinese inflation by making imported oil and other goods cheaper in Chinese currency terms. Beijing has restrained the yuan's rise since the 2008 global crisis to help Chinese exporters that employ millions of workers compete abroad.

"The appreciation of the Chinese currency should be a gradual process, because we must bear in mind its impact on Chinese businesses and our employment situation," Wen said at the news conference, held following the closing of the annual session of China's legislature.

Beijing faces pressure from Washington and other trading partners to ease currency controls that they say keeps the yuan undervalued, giving China's exporters an unfair price advantage and swelling its multibillion-dollar trade surplus.

Wen echoed China's central bank governor, Zhou Xiaochuan, who said Friday that Beijing would not use currency policy to fight inflation. Zhou said the government has more effective tools to control prices.

Wen said Chinese prices are being driven partly by global inflation. He repeated Chinese complaints about "quantitative easing," the Fed's term for its strategy of trying to push down interest rates and spur growth with multibillion-dollar bond purchases.

Regulators in some Asian economies complain lower interest rates and a weaker dollar caused by the Fed have prompted an influx of money in search of higher returns, pushing up commodity prices. Analysts say China's currency controls have shielded it from such inflows but it still faces higher prices for oil and other imports.

"Some countries have pursued quantitative easing and that has caused drastic fluctuations in the exchange rates of some major currencies and in global comodities prices," Wen said.

"Imported inflation has had a big impact on China and is a factor that is not easy to control."