China: Flexible yuan won't rebalance world economy

SHANGHAI — China says plans to allow greater flexibility in its currency are in line with its own interests but will do little to rebalance world growth without a fundamental overhaul of global financial systems.

The announcement Saturday by China's central bank that it is giving up a two-year-old peg of its currency to the U.S. dollar won praise overseas, coming just a week ahead of a G-20 summit where the issue was bound to be discussed.

But Beijing remains insistent that its currency policies are not the main problem.

The summit must focus on more urgent global reforms, said a commentary Monday by the official Xinhua News Agency.

"If they cannot make good use of the coming G20 summit to press ahead with the much-needed overhaul of the global financial system, the international community will soon find to its disappointment that its leaders look only for red herrings, rather than real solutions, at a time when true leadership is badly needed," it said.

Underscoring Beijing's insistence on stability and its warnings it plans no major changes, the official exchange rate for China's currency stood unchanged Monday morning.

The central bank left the yuan's parity rate against the U.S. dollar unchanged Monday at 6.8275, the official Xinhua News Agency said. The rate is a weighted average of prices given by market makers, excluding highest and lowest offers.

But the yuan did gain in spot trading, strengthening to 6.8030 to the dollar by midafternoon Monday, up from 6.8272 on Friday.

Regional markets nonetheless responded enthusiastically to Beijing's announcement, with shares climbing in most major markets as investors relieved of uncertainty bought airlines and other heavyweight shares.

"The markets were boosted because investors are becoming less risk averse than before. They are more aggressive," said Ben Kwong Man Bun, chief strategist for KGI Securities in Hong Kong.

A stronger yuan would make Chinese exports more expensive and bring relief to foreign manufacturers that have struggled to compete. But Beijing insists currency stability is fundamental to economic growth and denies other nations' accusations the yuan is unfairly undervalued.

Some slammed the central bank's announcement as a capitulation to foreign pressure, despite Beijing's insistence it would do nothing of the sort.