China Foreign-Exchange Reform Smooth, PBOC's Su Says (Update1)

By Belinda Cao


Nov. 24 (Bloomberg) -- China is progressing with foreign- exchange reform smoothly and the mechanism plays an important role in `adjusting' the nation's trade balance, central bank Deputy Governor Su Ning said.

The rate of the yuan also plays an important role in sustaining the nation's economic growth, Su said today at a financial conference in Beijing.

``The foreign-exchange mechanism will help improve the economic structure and lead to industry upgrading,'' he said.

European and U.S. officials have been urging China to allow it currency to appreciate faster to reduce global imbalances in trade they say are threatening manufacturing jobs. They claim the Asian nation keeps the yuan undervalued to support exports.

China will consider widening the yuan's 0.5 percent daily trading limit ``if necessary'' and gradually allow the currency to move more freely, central bank Governor Zhou Xiaochuan said in Cape Town, South Africa, on Nov. 18.

``The currency's gain will lead exporters to be less reliant on price competition and will force companies to be more competitive and use their resources more efficiently,'' said Li Huiyong, a currency analyst at Shenyin Wanguo Research and Consulting Co. in Shanghai.

Li said the central bank is likely to allow the yuan to strengthen at a faster pace, though its advance is likely to remain at less than 10 percent a year.

The yuan rose 0.11 percent to 7.4060 per dollar in Shanghai yesterday, according to the China Foreign Exchange Trade System. The currency rose as high as 7.3912, the strongest since its peg to the dollar was scrapped in July 2005.