China will let yuan weaken if exports falter
Wed, Jul 21, 2010

BEIJING, CHINA - Export-driven China will let the yuan weaken against the dollar if overseas shipments falter significantly, a central bank adviser was quoted as saying Wednesday.

The comments by Zhou Qiren, published in the Japanese newspaper Asahi Shimbun amid US pressure to let the yuan strengthen, came after China forecast a slowdown in exports in the second half of 2010 due to Europe's financial woes and a tepid US recovery.

Zhou, a member of the central bank's monetary policy committee, also said policymakers should have moved sooner than last month to loosen controls over the yuan exchange rate.

'The exchange rate of the currency will decline if it becomes necessary to support exports,' Zhou told the Asahi Shimbun in an interview, according to the paper's English-language website.

The People's Bank of China pledged on June 19 to let the currency trade more freely against the greenback, though it ruled out any large fluctuations.

But Zhou said the fixed exchange rate had been a burden on China and should have been relaxed much earlier to ensure stability in financial markets.

China had effectively pegged the currency at about 6.8 to the dollar since mid-2008 to support exporters during the global crisis.

The yuan has appreciated 0.7 percent since the announcement a month ago.

Some critics, including US lawmakers, say the currency is undervalued by as much as 40 percent, giving Chinese exporters an unfair trade advantage.

Exports soared in June, albeit at a slower pace than in May, as demand for Chinese-made goods remained robust despite Europe's debt crisis and sluggish growth in the United States.

China's commerce ministry spokesman said Tuesday exports would slow in the second half amid 'uncertainties in foreign demand'.

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