China says will follow own reform path for yuan

BEIJING, Mar 11 (Reuters) China will determine the reform path of the yuan according to its own needs and will not follow the dictates of other countries, central bank governor Zhou Xiaochuan said on Saturday.

Zhou, governor of the People's Bank of China, told reporters on the sidelines of the National People's Congress, or parliament, that recent softness in the yuan mainly reflected movements in the dollar against the euro and the yen.

''We will not bow to pressure from other countries to change our policies, but we will still pay attention to every issue in the global economy,'' Zhou said of pressure from the United States on China to allow the yuan to appreciate further.

Washington reported a record trade deficit of .5 billion for January, a quarter of it with China, and the clamour is growing from U.S. manufacturers for the administration of President George W.

Bush to take a harder line with Beijing on currency and trade issues.

The trade gap and yuan are expected to feature high on the U.S.

agenda during President Hu Jintao's next visit to the United States, expected in late April, though dates have not been officially announced.

The swelling deficit will likely increase pressure on China to push up the yuan, which has strengthened just 0.73 pwer cent since its 2.1 per cent revaluation against the dollar on July 21 last year.

The U.S. Treasury also is due to deliver a semi-annual assessment next month on whether China or any other countries are deliberately manipulating their exchange rates to gain an unfair competitive advantage.

Zhou said: ''The United States always takes advantage of the semi-annual report as a chance to exert pressure on China, but we will still insist on the three basic principles when carrying out monetary reform: initiative, control, and gradualism.'' The yuan's exchange rate is currently determined by market forces and market supply and demand will continue to play a ''basic role'' in determining the currency's value, he added.

Zhou said the yuan would be discussed during next month's Spring meeting of the International Monetary Fund and World Bank, a forum for finance ministers from the Group of Seven industrial countries to take stock of burning international issues.

But the talks would focus mainly on global imbalances and not China's growing trade surplus with the United States, the central bank chief said.

He also said that as long as China's economy continues to develop smoothly, and if consumer and producer price inflation both remain at appropriate levels, China will maintain low interest rates in the near term.

He added that the Bank of Japan's abandonment this week of its five-year experiment of flooding the banking system with excess cash to tackle deflation would not have a big influence on China's monetary policy.

REUTERS SD PM1442