On Monday the value of the Renminbi (RMB) yuan against the US dollar hit a new high with a central parity rate of 7.8240 yuan to the dollar. This breaks the 7.83 mark but a senior economist has hinted the Chinese government will allow the yuan to appreciate further in 2007.

Li Yang, director of the Institute of Finance and Banking of the Chinese Academy of Social Sciences, told Xinhua that China would adopt a neutral monetary policy and allow the exchange rate of the yuan to fluctuate within a wider band. "The likelihood of China continuing its tight monetary policy will diminish greatly," he said.

Li also said economic growth would decline slightly. A report recently released by the academy showed the growth rate would drop to 10.1 percent in 2007. Official statistics indicate China's economic growth rate declined to 10.4 percent in the third quarter from 11.3 percent in the second.

The economist said the foreign reserves management system might be subject to reforms which would have a significant impact on the national economy and the country's financial markets.

"The current monetary policy can only alleviate but can't solve the root problem of liquidity," he said. "If the government functions are not reformed the liquidity surplus will inevitably increase."

He noted that the central government was mulling over a real estate macro control system which would take into account regional differences to slow price rises of commercial homes. 

The value of the RMB has increased by 3.65 percent since China reformed the exchange rate system last year. The exchange rate remained at around 8.28 yuan per US dollar for a considerable period prior to the reform of the system on July 21, 2005.

China's foreign exchange reserves, which increased by more than US$18 billion a month over the first nine months, are reputed to have hit US$1 trillion after climbing to US$987.9 billion at the end of September.

(Xinhua News Agency December 5, 2006)