China will adopt a mix of measures aimed mainly at boosting domestic consumption to help rebalance its blistering economy, rather than letting the yuan rise sharply, a senior central banker said on Saturday.
China sees an urgent need to make policy adjustments as it faces escalating trade frictions with the United States and other trade partners in response to its ballooning trade surplus, said Yi Gang, assistant governor of the People's Bank of China.
"Our overall adjustment strategy is to adopt a mix of tools, rather than solely depending on foreign exchange rate changes, to rebalance the economy, which is our conclusion," Yi told a financial forum.
He reiterated the central bank's long-standing position that it will keep the yuan basically stable but gradually allow its exchange rate regime to be more market-driven. The tools at Beijing's disposal included steps to strengthen domestic demand, further open the country's market, increase imports, encourage outbound investment and promote urbanisation, the official said.
Adjustments to the yuan's exchange rate and steps to increase production costs so as to blunt Chinese products' edge in global markets will also facilitate the rebalancing of growth, Yi said.
China revalued the yuan by 2.1 percent in July 2005 and replaced its hard dollar peg with a float within managed bands. The currency has now appreciated another 7.3 percent - but that is still not enough to satisfy critics who say Beijing keeps it artificially low to give its exporters an unfair advantage.
"Judging by the purchasing power parity of currencies, it is true that most Asian nations' currencies are somewhat undervalued," Yi said. But he noted that China was not only steadily letting the yuan appreciate, but was also adjusting the prices for manufacturing inputs.
Yi conceded that letting the yuan strengthen sharply would indeed work more quickly than price adjustments to help upgrade industry, promote innovation and boost imports.