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China rules out yuan devaluation

Not only will China not devalue its currency, but a devaluation would be harmful and is unnecessary, the central bank governor said today.

''Devaluation has no advantages,'' said Dai Xianglong, head of the People's Bank of China.

"It would harm the interests of foreign investors. Secondly, it would increase the foreign debt of China. Thirdly, it would not benefit the stability of Asian financial markets,'' he told a media conference.

Dai's reassurances came as little surprise: Chinese leaders, including premier Zhu Rongji, have repeatedly pledged that the yuan will remain stable through this year.

But fears that the government might break its pledges resurfaced after Brazil devalued its currency this month, sending shivers through Asian financial markets.

"I feel pleased that the yuan has so much influence,'' Dai said, noting the financial markets' anxiety.

But even at the height of the Asian financial crisis, when other currencies in the region were plunging in value, the yuan held firm, he said.

"Now, there's even less of a need to devalue,'' Dai said. "As the person in charge I reassure you that the yuan will not devalue. I think these are official and authoritative views.''

In listing reasons why a devaluation was not on the cards, Dai said China's foreign exchange reserves of $ 145 billion exceed its annual import costs. Export costs also are stable, he said.

"The yuan will only devalue when there is a great imbalance in the Balance of Payments of China and there is a great increase in the cost of exports,'' Dai said. "But I do not think these conditions exist this year.''

UNI

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