Economy on healthy land, RMB to be stable
Updated: 2006-10-01 10:16

China's monetary measures to cool its heated economy has shown signs of efficacy, and the central bank will attempt to stabilize the yuan's exchange rates with major world currencies, the 13-member Monetary Policy Committee said in a statement yesterday.

The committee, headed by Zhou Xiaochuan, governor of the People's Bank of China (PboC), said the central government's macro-economic control measures have begun to curb the runaway growth of some overheated industrial sectors.

While the market is expected to continue playing a fundamental role in setting the value of the yuan, also called RMB, its value will be maintained basically stable and at a reasonable and balanced level, the statement said, which was posted on the website of PBoC, the central bank.

Partially attributed to the high-profile visit to Beijing of US Treasury Secretary Henry Paulson, who has persuaded two US senators to drop the threat of imposing punitive tariffs on Chinese goods, the yuan's value has risen by remarkable grounds against the US dollar. It traded at around 7.90 to 1 US dollar on Friday.

Market analysts predict that the yuan will continue to gain in value against major world currencies in the coming months, though by a moderate step-by-step pace. The Monetary Policy Committee is concerned that big swings of up or down in the yuan value will jeopardize Chinas financial system, which is considered harmful for China's economy and other major world economies.

The committee said China needs to keep on implementing a variety of monetary policies in order to curb the sharp growth of loans and maintain a stable financial situation.

It also picked the irrational economic structures, pressure on the environment and resources, and the imbalance of international payments, as major problems threatening China's economy. It suggested the central government maintain the continuity and stability of the macro-control policies to expand domestic demand, and improve investment structures.

The central bank is likely to further increase commercial banks' reserve ratio to absorb excessive funds from the economy, some analysts said. The bank twice this year raised the ratio of the money that the commercial lenders need to set aside as reserve to slow  credit.

The State Council, China's top governing body, has also suspended provincial investment projects and cut export rebates to prevent overheating in its economy which expanded by 11 percent in the first half year ending June.

The National Development and Reform Commission, China's top state planning agency, on Aug. 1 ordered provincial governments and local councils to review all investment projects and cancel those that didn't meet industrial, land, credit and environmental regulations.

The government of eastern China's Jiangsu province suspended 27 new projects last month for failing to meet the rules.

China's August monthly investment growth fell to 21.5 percent, the lowest level this year, down from 27.4 percent in July, because of the government's curbs, the country's statistics commissioner Qiu Xiaohua said.