On April 18, the People’s Bank of China, the country’s central bank, issued a report saying the higher US dollar interest rate would help lure idle funds to the US, resulting in a strong US dollar that would ease pressure to revaluate the renminbi, China’s currency.
During the first quarter of this year, the Federal Reserve twice raised the US dollar’s interest rate by 0.25 percent, resulting in the present 2.75 percent interest rate and 3.75 percent discount rate.
The Analysis of Foreign Exchange Bank-to-bank Markets in the First Quarter of 2005 said the domestic economy has maintained stable development, and export growth is still faster than imports. Growth of foreign direct investment is slowing down and the management of foreign exchange has been further improved. The exchange rate of renminbi and US dollar has remained stable.
The central bank reaffirmed that the government has kept a clear and consistent stand on reform of the renminbi’s exchange mechanism.
Since the beginning of this year, it has said the country is on track for exchange rate reform in response to demand from the world's richest nations for a more flexible regime, but it will be carried out in a measured way to guarantee stability of the renminbi based on keeping the rate at a fair and equitable level.
In order to facilitate the balance of capital payments and maintain a stable exchange rate, several measures have been carried out by the State Administration of Foreign Exchange.
These measures include enhancing and improving the management of short term foreign loans, adjusting quotas on forex accounts, regulating transactions on imports and strengthening supervision of foreign payments in individual property transfer.
The bank said these measures facilitated trade and investment activities and enhanced short-term capital inflow as well as foreign exchange transaction management.
According to the report, the growth in imports began to slow down last year. During the first two months of 2005, growth dropped by a large amount, while at same time, exports increased rapidly.
The report concluded that import growth decline shows domestic production is slowing down and also indicates that the whole economy is cooling down.
Foreign capital inflow has tended to slow down, while contractual foreign capital and the number of newly founded foreign invested enterprises also fell in February year-on-year. The report said this indicates that the efforts of central government have begun to take effect.
(China.org.cn by Wang Zhiyong, May 1, 2005)
