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. Last Updated: 07/27/2016

China Urged to Unpeg Yuan From the Dollar

BEIJING -- China must maintain a stable yuan and stave off possible inflation to protect ordinary people, central bank governor Zhou Xiaochuan was quoted as saying Monday.

The yuan remark highlighted the government's deep-seated worries about any economic fallout from a possible revaluation requested by China's export competitors.

"An unstable currency value, inflation, and particularly runaway inflation, will seriously erode the interests of the masses," the Financial News quoted Zhou as saying.

Zhou did not elaborate, but his comments were the latest in a string of remarks by top economic officials that China would not immediately tamper with the yuan, which is tied in a very narrow range around 8.278 per U.S. dollar.

China has repeatedly shrugged off calls by foreign countries, including the United States, Japan and South Korea, to revalue the yuan. Critics say the yuan's peg to the weakening dollar gives Chinese industry an unfair advantage in world markets.

By linking the currency to the interests of ordinary people, Zhou echoed comments last week by Commerce Minister Lu Fuyuan that economic growth and job creation outweighed international concerns.

Lu said the yuan must be kept stable for now, but he did not rule out future changes to currency policy.

A yuan appreciation would make Chinese goods more expensive abroad and reduce export growth, possibly hitting employment and overall economic growth, analysts say.

Analysts said the government, preoccupied with key domestic issues such as turning around debt-ridden banks, was unlikely to yield to growing foreign pressures for a yuan revaluation.

"China has substantial unresolved issues in the state-owned enterprises sector and also in the banking system," said Jonathan Garner, managing director of global strategy and equity research at Credit Suisse First Boston.

"The message we were getting was that a change in the peg at this stage would not be helpful to China as it tries to deal with those very material issues," he told a news conference after he met with unspecified Chinese officials last week.

China would shun a yuan revaluation also because it could hurt the inefficient farm sector, which is opening up to competition under the World Trade Organization, Garner said.