Wen said that when conditions are ripe, the Chinese government "will take the initiative to advance the reform of the exchange rate system without any pressure from outside the country."
Wen said that it is essential to take into consideration factors such as the macro-economic environment, the ability of Chinese companies to withstand the impact of changes in exchange rates, the progress of the financial sector's reform, and the impact of revaluation on international trade.
"If conditions are not optimal, the Chinese government will never hastily take any action, regardless of how great the pressure from outside is," Wen said.
Local analysts said that the Chinese leader's statement was a response to the United States' recent stepping up of pressure on China to revalue the RMB. Wen's remarks are likely to quell recently heated speculations about revaluation.
Being a large nation, China has to be mindful of its internal practical needs if it is to proceed with RMB revaluation, said Li Yang, director of the Finance Institute under the Chinese Academy of Social Sciences.
Li said that China must steer clear of the situation that Japan found itself in when it increased the value of the Yen under pressure from the United States, with negative economic consequences, in the 1980s.
The US Senate passed a bill in April to demand that China let the RMB appreciate in six months. Failing which, the US will probably impose punitive tariffs on imported goods from China.
Since April, there have been speculations that pressure from the United States will compel China to revalue its currency soon. Rumors were so rife that the slightest movement in China's foreign exchange market led to predictions that the RMB would appreciate around May 1. After the rumors proved to be fake, more speculations arose that China would increase the value of its currency when it launches inter-bank foreign exchange purchase businesses this Wednesday.
However, Governor of China's Central Bank Zhou Xiaochuan last Friday described the rumor as groundless.
Li Yang attributed the increased US pressure on the RMB issue to the presumption that a revaluation of the Chinese currency will help scale back the United States' gaping trade deficit.
The growing US trade and budget deficits are the outcome of the structural problems in the US economy, Li said. The United States should look inside rather than outside to seek resolutions to the problems so as to restore balance to its current accounts.
Since the US trade deficit with China has become an issue of common concern between the two nations, the two sides are showing a readiness to step up dialogue and consultation on the issue. In March, Vice Premier Wu Yi told US Secretary of State Condoleezza Rice that China is ready to join efforts with the United States to expand US hi-tech exports to China so as to realize a balance of trade between the two countries.
(Xinhua News Agency May 17, 2005)
