labels: finance - general, economy - general
China outlines economic controls news
01 November 2006

China will press ahead with changes in its foreign exchange rate regime, with the country''s central bank saying that it "let the market play its role" in setting rates. The People''s Bank of China has also said it will allow foreign investors to pick up larger stakes in financial institutions.

The Xinhua news agency, meanwhile, quoted government officials as saying that policies to cut over-rapid investment and credit growth will continue. There are large imbalances in China''s economic development at present, leading to persistent fears of overheating.

The central bank has raised interest rates twice since April, acting in tandem with the government which has introduced tougher land-use and environmental standards in an attempt to deter wasteful investment.

Xinhua quoted Ma Kai, head of the National Development and Reform Commission, as saying China should continue making use of economic, legal and administrative measures to keep a check on the economy.

''Strengthening controls'' Though foreign investors could take larger stakes in China''s financial services industry, the central bank has affirmed, however, that the State would retain overall control. "China will strengthen the control of its main financial institutions in order to safeguard national financial security," the central bank said.

Three consecutive years of growth, exceeding 10% a year, have seen China pass Britain to become the world''s fourth largest economy. It is on track to record its fourth straight year of double-digit growth.

Foreign financial institutions have recently been allowed to buy into China''s big banks, prior to their listing on the stock markets. The government now wishes to see foreign investment boosting the development of regions lagging behind the fast-growing coastal provinces, however.

Yuan gains China''s economy, which grew 10.7% in the first nine months of 2006 compared with a year earlier, still faced serious imbalances, the central bank added. According to the bank, continuing worries were the excessively rapid investment growth, sluggish consumption demand and a big balance-of-payments surplus.

Although consumer prices rose only 1.5% in the year to September, the bank said these imbalances were adding to liquidity in the banking system that could fuel inflation.

After the bank''s announcement on Monday, the yuan achieved its second biggest daily gain against the dollar since it was revalued in July 2005. The currency hit a post-revaluation high for the third straight trading day, closing at 7.8738 to the dollar. This marked a gain of 0.20% over Friday''s close of 7.8896. It is also the second biggest rise since Beijing revalued the yuan by 2.1% and de-pegged it from the US currency in summer of 2005.

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China outlines economic controls