China second largest economy: bank chief

Friday, July 30, 2010
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China has moved ahead of Japan to become the world's second-largest economy, a senior central bank official said in an interview published on Friday.

Yi Gang, a vice-governor of the People's Bank of China and also the head of the State Administration of Foreign Exchange (SAFE), did not explain how he had arrived at the figures, according to the comments posted on the SAFE website.

"China is actually now already the world's second-largest economy," Yi said in an interview with China Reform magazine.

China has powered out of the global crisis on the back of a stimulus package worth $US586 billion ($A650.42 billion) and state-backed bank lending, with its economy growing 10.3 per cent in the second quarter and 11.1 per cent in the first half.

China's gross domestic product in the first six moths stood at 17.284 trillion yuan, according to the National Bureau of Statistics. That comes to $US2.5324 trillion ($A2.81 trillion), using the central bank's average monthly exchange rates.

Japan is due to release its first-half GDP figure in mid August.

Yi also said China wants the yuan to be fully convertible and such currencies are generally free-floating, six weeks after Beijing pledged to loosen its grip on the yuan.

Yi, however, gave no timetable for convertibility to be achieved.

"Our ultimate goal is to make the yuan a convertible currency," Yi said in the interview, according to a transcript posted on the SAFE website.

"Generally speaking, the exchange rate of a convertible currency is free-floating," Yi said, adding there was no "official timetable" as China is vast and its development is not balanced, making it hard to reach a consensus.

China in July 2005 freed the yuan from an 11-year-old peg to the US dollar and moved to a tightly managed floating exchange rate.

But in mid-2008, policy makers effectively pegged the currency at about 6.8 to the dollar to prop up its exporters during the global financial crisis. Critics say the yuan could be undervalued by as much as 40 per cent.

Last month, the central bank pledged to loosen its grip on the yuan exchange rate and allow the currency to trade more freely against the dollar, albeit within a tight band.

Yi said there were "no foundations for sharp fluctuations" in the yuan's rate, but added the government had "conditions to keep the foreign exchange regime flexible".

This week, Beijing allowed an IMF staff report that said the currency was "substantially" undervalued to be made public for the first time in four years, reflecting its confidence that it can control the global debate on the yuan.

In response to a question about the possibility of the yuan becoming a world reserve currency, Yi said Beijing would rather leave it to market demand than push for international acceptance of the unit.

"First of all, it depends on the economic power of the country or the alliance of states; secondly, the cohesion and attractiveness of its culture; and thirdly, its political and military powers," he said.

"The culture and values behind a real reserve currency must be influential in the whole world."

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