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Market will play bigger role in yuan's exchange rate, State Council says

By Wang Yanlin | May 15, 2014, Thursday | Online Edition

China will allow the market a bigger role in determining the yuan's exchange rate as part of efforts to stabilize trade and boost the economy, the State Council said today in a statement.

"China will further improve the foreign exchange system and make it more market driven," the statement said. "Our currency is to have more flexibility."

The exchange rate will stabilize at a "reasonably balanced" level and the government encourages the creation of financial hedging products to help traders control risks, it said.

The statement came after the People's Bank of China in March allowed the yuan to fluctuate 2 percent on either side of the central parity rate.

The yuan has lost 3.5 percent since hitting a record of 6.04 yuan per US dollar on January 14. Some economists believe the central bank engineered the decline to squeeze speculative foreign capital, or hot money, from the market.

A weaker yuan helps exporters since it makes their products cheaper.

In April, exports gaining 0.9 percent, reversing a 6.6 percent fall in March. Imports expanded 0.8 percent, up from an 11.3 percent decline a month earlier.

Over the first four months, trade has contracted 0.5 percent compare to the same period a year earlier.

Other efforts to stabilize trade included further reduction of administrative red tape, construction of more model trade zones to nurture competitive importers and exporters, optimizing the structure of trading slanted towards higher added value products.

China will also strengthen efforts to deal with trade disputes, the statement said.

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