China flags shift from currency peg

CHINA has signalled its desire to shift to a market-based currency system as it faces growing international criticism of its exchange rate policy.

With the European Union and Canada joining in criticism of China, Wu Bangguo, head of the Chinese parliament, the National People's Congress, said that while Beijing wanted to maintain currency stability it was considering a shift towards a less controlled regime.

'We hope to nurture structural mechanisms for the yuan based on market principles,' said Wu. Senior officials have previously suggested that they may in time unshackle the yuan, which is pegged at a rate of 8.3 to the US dollar.

In recent months Washington and Tokyo have sharply criticised the fixed yuan rate, claiming the currency is undervalued, handing Chinese companies an unfair trade advantage.

EU External Relations Commissioner Chris Patten, presenting proposals to broaden the EU's strategic relationship with China, said: 'There are concerns about the level of the Chinese exchange rate.'

Beijing has also come in for further criticism from North America with Bank of Canada Governor David Dodge calling on China to float its currency. 'I would urge all countries, certainly over time, to move toward a floating exchange rate. That flexibility, according to our analysis, would serve China well, just as it has served us well and a number of other Asian countries well after the '97 crisis,' he said.