BEIJING, Mar 19: New premier Zhu Rongji on Thursday ruled out a devaluation of the Chinese yuan, and he vowed to defend the Hong Kong's dollar's link to the US currency at any cost.Zhu said a yuan devaluation amid the Asian financial meltdown would affect regional stability and prosperity. ``We are now faced with formidable challenges due to the financial crisis in Southeast Asia, so we must ensure that China's growth rate this year must reach eight per cent, China's inflation must be lower than three per cent,'' Zhu told a news conference.``China's renminbi (yuan) cannot be devalued,'' he said.
``This is an objective that we must meet because it will have a bearing not only on the development of China but also on the prosperity and stability of Asia.'' Zhu was speaking on the final day of the annual session of the National People's Congress.
China's export growth has slowed due to Asia's financial turmoil as weakness in many regional currencies makes Chinese products look more expensive.
Top Chineseleaders, including Zhu himself, have repeatedly said China would not devalue the yuan to spur exports, but some economists predict Beijing may be forced to make such a move to maintain economic growth as exports sag.However, Zhu made clear China would seek a new engine to power the economy and boost domestic demand through investment in infrastructure, including residential housing.
He also pledged that China would help defend the Hong Kong dollar.``The central government would spare no cost to maintain the prosperity and stability of Hong Kong, and to maintain the link system between the Hong Kong dollar and the US dollar,'' Zhu said.
Speculators have mounted repeated attacks on the Hong Kong dollar in the wake of the Asian financial crisis, which began last year. Some analysts say Hong Kong may be forced to scrap its currency board system and devalue its currency in line with its neighbours. Any devaluation of the yuan could knock aside the Hong Kong dollar peg, since the economies of Hong Kong andmainland China are so closely entwined.
The former British colony of Hong Kong reverted to Chinese rule on July 1, 1997. However, Hong Kong has been given autonomy to run its own affairs and maintain its capitalist system for another 50 years.
Despite the Asian crisis, China would not slow its own financial reforms, including achieving full convertibility of the yuan, Zhu said. China's currency is now convertible only on the current account -- comprised mainly of trade flows -- and not the capital account. Lack of full convertibility had sheltered China from the Asian currency chaos since it made it hard to speculate against the yuan.
``The Asian financial crisis will not affect the set agenda for China's financial reform,'' Zhu said. But Zhu gave no timetable for full convertibility, saying only it would ``take some time.''
``We will achieve that objective when the supervisory and regulatory capabilities of the central bank of China are up to standard,'' he said, without elaborating.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
