China has so far resisted pressure from some of its trading partners to revalue its currency. The EU, Japan and the US have all maintained that the exchange rate of the yuan is too low, making China's exports unfairly competitive with their own products, leading to losses of manufacturing jobs. The Group of Seven richest nations and the Internation- al Monetary Fund also voiced their concerns.
Finance Minister Jin Renqing said he took note of these concerns but argued that the fixed exchange rate regime was conducive to economic and financial stability in China and the rest of the world. However, he did reiterate the central government's pledge to improve the mechanism of the exchange rate. Another proposal brought forward by China is to end the yuan's effective peg to the dollar in favour of a link to a basket of currencies of its major trade partners.
Meanwhile speculative funds have been finding their way into China in expectation that the yuan would be revalued, Business Weekly said. A report by the investment bank Credit Suisse First Boston said that up to US$25bn in short-term funds had entered China, circumventing the authorities' foreign exchange controls. However, the People's Bank of China has been releasing cash reserves in order to dampen speculation and keep the exchange rate stable.