China likely to go cautiously on yuan-ADB's Jin

HYDERABAD, India, May 3 (Reuters) China is likely to stick to its prudent approach in currency reforms to help rebalance its economy, despite its rosy growth outlook, a senior official at the Asian Development Bank said on Wednesday.

Jin Jiqun, a vice president of the ADB and a former Chinese vice finance minister, said China's rapid urbanisation would help the economy maintain robust growth of 8 to 9 percent in the next five to 10 years.

''The prudent approach to reforms of the exchange rate regime is good for China and good for the rest of the world,'' Jin told Reuters on the sidelines of the bank's annual meeting.

A more flexible yuan would help reduce the economy's reliance on exports over time, Jin said.

But asked whether he expected the yuan to rise sharply, he said: ''Some people say the yuan is 30-40 percent undervalued (versus the dollar), which I believe is pure speculation.'' The government should step up efforts to avoid big swings in the economy, which grew 10.2 percent in the first quarter on strong exports and investment, he said.

''China should avoid major fluctuations because the boom-to-bust cycle is more damaging than the seemingly lower growth rate,'' Jin said.

China revalued the yuan by 2.1 percent against the dollar in July in a landmark reform that introduced a managed float regime to pave the way for greater currency flexibility.

But the central bank has kept the yuan on a tight leash, despite expectations of faster appreciation of the currency amid pressure from the United States and other countries that say a weak yuan gives Chinese exports an unfair advantage.

''The policy changes are in the interest of China's economy as a whole in the long term but it's not easy as it has to consider the impact on all sectors, especially the banking sector,'' Jin said.

''I don't think Chinese decision-makers will make any policy changes simple because of pressure from the outside.'' REUTERS SBJ ND2005