China said it can’t stop intervention in the yuan because economic growth is too weak and capital flows aren’t steady enough to warrant changes.
“The U.S. side has repeatedly asked, in terms of exchange- rate policy, whether China needs to intervene any more,” Finance Minister Lou Jiwei said at a press briefing today in Beijing during economic talks between the countries. “But for us, under the current situation, when the economy hasn’t recovered fully and when cross-border capital flows are not completely normal, we’ll continue” existing practices, he said.
The comments signal China may move more slowly than the U.S. wants on liberalizing currency policy after it widened daily trading limits in March and the central bank said it would eventually end normal intervention in the market. Lou spoke hours after Treasury Secretary Jacob J. Lew said moving to a market-determined exchange rate will be a “crucial step” in helping drive China’s economic growth.
Vice Premier Wang Yang said that if China moves too fast on opening up to the U.S. and on exchange-rate reform, it may make “fundamental mistakes,” while moving too slowly would affect the policy process in China.
“So how to move at the right pace is something that we must manage well in our reform process,” Wang said at a meeting with U.S. officials including Lew.
The U.S. Federal Reserve’s tapering of bond purchases has sparked capital-flow volatility for countries including China, making exchange-rate control more difficult, Lou said.
China has introduced steps including faster infrastructure spending and tax cuts to support economic growth that slowed to a six-quarter low in the January-March period and is under threat from a property slump. Lou reiterated today that China’s expansion target is “about 7.5 percent,” and said that 7.5 percent “isn’t a floor.”
The yuan has weakened about 2.3 percent against the dollar this year, the most among 11 major Asian currencies, following a 2.9 percent gain in 2013. China’s foreign-exchange reserves probably rose to a record $3.98 trillion at the end of June, based on the median estimate of economists surveyed by Bloomberg News, from $3.82 trillion in December.