BEIJING, Oct 15 (Reuters) China will wean its economy off export-led growth and promote more consumer spending to reduce its bulging balance-of-payments surplus, President Hu Jintao today said.
Opening the ruling Communist Party's five-yearly Congress, Hu reaffirmed China's commitment to let the yuan move more freely and gradually dismantle the country's capital controls.
Hu, who broke no new policy ground in his speech, said climbing faster up the technology ladder instead of relying on ever-greater consumption of raw materials was also an important element in rebalancing China's growth.
''This is a pressing strategic task vital to the national economy as a whole,'' he said.
China is likely to come under fire for its export-led growth model when finance ministers from the Group of Seven rich industrial countries meet in Washington on Friday.
The G7 wants China to import more, thus stoking demand at a time of slowing global growth, by letting the yuan's tightly controlled exchange rate rise faster.
The yuan has gained a further 7.9 per cent against the dollar since it was revalued by 2.1 per cent in July 2005 and cut free from a dollar peg to float within managed bands.
But the United States says the yuan remains far too cheap, given China's record 1.434 trillion dollars stash of foreign exchange reserves and a current account surplus that the World Bank expects to reach 12 per cent of national income this year -- unprecedented for a major economy.
NOT SO QUICK The European Union is becoming just as frustrated as the United States because the yuan has actually fallen in value against the euro in the past two years.
China, though conscious of international pressure, is wary of letting its currency rise too abruptly for fear of endangering export-linked jobs and exposing tens of millions of farmers to cheaper imports.
Hu's speech balanced these conflicting considerations: ''We will adopt comprehensive measures to maintain a basic equilibrium in the balance of payments. We must guard against international economic risks.'' Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said he expected China to permit further flexibility in the yuan and further freedom in capital flows.
''But the speed at which this takes place may surprise markets. It's going to be years not months,'' Simpfendorfer said.
''This is not a policy that's going to be introduced in a week's time.'' Qi Jingmei, an analyst with the State Information Centre, a government think-tank, added: ''Although lifting those controls in the short term may lead to big market fluctuations and turbulence, which is also the concern of top authorities, that's the right thing to do for the benefit of long-term strong growth.'' In a wide-ranging speech, Hu promised to deepen capital market reforms so that companies need to rely less on banks to finance their growth.
Hu was silent on the strategy of China's new sovereign wealth fund, which will manage part of China's currency reserves, but he said Beijing would accelerate the growth of Chinese multinational companies and Chinese brand names in the world market.
''The speech sends the signal that the government will ensure sustainable economic prosperity, which is the cornerstone of the stock market's boom,'' said Liu Lifeng, a fund manager at BOC International Holdings in Shanghai.
Reuters SS RS0926