China eases exchange rate controls

CHINA has announced it will ease exchange rate controls that have been criticised by Washington and other trading partners as part of reforms aimed at making its economy more efficient.

The band in which the tightly controlled yuan is allowed to fluctuate each day against the US dollar will double in size but stay relatively narrow, allowing a 2 per cent change up or down.

The move, widely expected, adds to a steady drumbeat of policy changes announced as part of plans by the ruling Communist Party to give market forces a bigger role in the state-dominated economy.

Widening the trading band will help to "optimise the efficiency of capital allocation and market allocation of resources to accelerate economic development," said a central bank statement.

Washington and other governments complain Beijing suppresses the value of the yuan, unfairly making Chinese exports cheaper abroad and hurting foreign competitors.

Some US lawmakers have demanded punitive tariffs on Chinese goods if Beijing failed to ease controls, but successive American administrations have resisted imposing sanctions.

Allowing the yuan to rise in value would increase the buying power of Chinese households, helping to achieve the ruling party's goal of nurturing more sustainable economic growth based on domestic consumption instead of trade and investment.

Reform advocates say that by suppressing the yuan's value, Beijing has been forcing even poor households to subsidise exporters.

In recent weeks, the central bank has been guiding the yuan's exchange lower against the dollar in what analysts said was an effort to discourage speculators who are moving money into China to profit from the currency's rise.

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