Chinese Premier Wen Jiabao's elaboration on the question of RMB exchange rate on June 26 at the Sixth ASEM Finance Ministers' Meeting drew wide attention. Wen stressed that the yuan reform must be carried out under the three principles of "independent initiative", "controllability" and "gradual progress", affirming that China would push forward the reform in a responsible manner.

This responsible attitude and act are not only beneficial to the stability and development of China's macro-economy, but to that of our neighbors and the world, Wen told attendees representing 39 ASEM members.

Wen's remarks demonstrate China's intention to enhance its image as a responsible big country, an image built up during the 1997 Asian financial crisis, observers said, when China struggled to hold on to its RMB exchange rate and thus won respect from its Asian neighbors and the world by avoiding a new round of currency devaluations in surrounding countries.

"Premier Wen put very well the responsible role that China has played over the last ten years including during the Asian crisis and I felt encouraged by what he said about building increasingly a marketplace foreign exchange rates regime", said Deputy Finance Minister Caio K. Koch-Weser of Germany, who was present at the meeting, in an interview. "But it is up to China to decide the timing (of exchange rate reform) and we are waiting," he added.

China will make further efforts to build a market-oriented, more flexible exchange rate mechanism, Wen said. As for the most concerned timetable, he said it must be dealt "in no hurry". This reform involves many sides and is of significant influence, and much preparation is still needed to create favorable conditions and environment so that all related sides would be able to bear the possible impact, he stressed.

Since this year, the United States has repeatedly pressed China for yuan revaluation, and even threatened to impose punitive import tariffs. In April and May, overseas media ran wild with rumors claiming a revaluation very soon. Premier Wen responded by making it clear that China will never yield to external pressure in its exchange rate reform.

Wen reiterated on June 26 that the pattern, content and timing of RMB reform must be decided in line with the needs of domestic reform and development. At this multilateral diplomatic occasion, however, another message from him just bears the same importance: China will take into serious consideration the possible impact of its reform on economic and financial conditions of its neighbors, the region and the world.

Asian countries who have stepped out of the shadow of financial crisis still need to strengthen their financial systems, observed Zuo Xiaolei, an economist. So, a stable yuan remains essential to them. Stability itself deserves welcome, she said, which is true to the economy of China, of Asia and of the whole world.

A rash change in yuan exchange rate arrangements will destabilize China's economic ties with East Asia, said Mei Xinyu, an expert from the Ministry of Commerce.

It is thanks to China's stabilizing role that East Asia was able to remain amazingly stable during the 1997 crisis and recovered within three years, Mei pointed out. What's more, through stabilizing East Asia economy, China has played a unique role in preventing the world economy from sliding into a disastrous depression as seen in the 1930s.

A visible yuan revaluation in short-term will not cut completely China's competitive advantages against its East Asian neighbors, rather, it will diminish China's stabilizer role and hurt the incomes these countries gain from markets, said Mei.

Nobel laureate Robert A. Mundell also warned last month that RMB revaluation will cast a negative impact on the integration of Asian economic and monetary policies, and will lead to instability in Southeast Asia or even economic recession in East Asia.

Source: People's Daily