China's central bank, manager of the world's largest foreign
currency reserves, has said it will let foreign companies sell
yuan-denominated bonds this year, possibly increasing demand for
China's currency.
"It makes more sense for foreign companies to sell yuan bonds
than having them convert currencies into the yuan for China
investments," Wu Xiaoling, vice governor of the People's Bank of
China, said at the annual session of the Chinese People's Political
Consultative Conference in Beijing on Saturday.
There aren't any policy obstacles preventing foreign companies
from selling yuan bonds, and the bank may approve the first sale as
early as this year, Wu told reporters.
China is seeking to expand its bond market to reduce its
companies' reliance on bank loans and to give investors more
choice. International Finance Corp, the World Bank's investment
arm, and the Asian Development Bank became the first overseas
institutions to sell yuan-denominated bonds in China in 2005,
Bloomberg News said.
The central bank has let the yuan's gains accelerate since
scrapping its peg against the US dollar in 2005. US Treasury
Secretary Henry Paulson will visit Beijing this week to renew
pressure on China to abandon controls on the yuan in response to US
lawmakers' contention that the country is keeping its currency
artificially weak to boost exports.
China will maintain the current "direction" of the yuan's gains
against the US dollar and will "determine the pace of the gains,"
Wu said.
The yuan weakened to 7.7465 per US dollar as of 5:29 PM in
Shanghai on Friday, according to the China Foreign Exchange Trade
System. The currency has risen 6.7 percent since scrapping the peg
of about 8.3 to the US dollar.
The yuan's current "pace of appreciation is appropriate" and
flexibility is "according to our own plan and the extent to which
the economy can afford," central bank Governor Zhou Xiaochuan said
on Feb. 9 in Essen, Germany.
China's currency reserves surpassed US$1 trillion last year, the
world's largest holdings of foreign currencies. The government
won't reduce its holdings of US Treasury bonds and other forms of
dollar-denominated debt, Wu said, without elaborating.
China still faces inflationary pressure and the central bank is
"actively" monitoring price trends, Wu said. Recent price rises of
agricultural produce are unlikely to continue, she said.
China's inflation accelerated to 2.8 percent in December, the
fastest monthly gain in 22 months, government data show.
(Shanghai Daily March 5, 2007)