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China will stick to gradual appreciation of yuan: Wen

world Updated: Mar 14, 2011 15:03 IST

Brushing aside the US demand to allow faster appreciation of the yuan, Chinese Premier Wen Jiabao on Monday said China will stick to its policy of gradual increase while charting out a new growth path to boost domestic consumption and reduce dependence on exports.

"The appreciation of the RMB (renminbi or yuan) must be gradual, because it affects jobs and raises pressure on enterprises and employment and we must maintain the overall social stability," Wen said at his annual media conference here on Monday.

"We will continue to stick to the reform of the formation mechanism of the RMB exchange rate," he said, adding that the Chinese currency has appreciated by 57.9 per cent since 1994.

"Our reforms have aimed to adopt a market-based, managed floating exchange rate regime, which is tied to a basket of foreign currencies, instead of pegging to the US dollar," Wen said.

He defended his government's decision to lower China's GDP target to 7 per cent for the next five years, scaling it down from the present double-digit growth rate.

China plans to achieve a high quality and efficient annual growth rate of 7 per cent during the 12th Five-Year Plan, starting this year, which is not easy by any means, Wen said.

Given China's increasingly large economic aggregate and the need to raise the quality and efficiency of its growth, "a 7 per cent growth rate is not a low target," Wen said, asserting that a shift from an export-dependent economy to a domestic consumption-driven one will not be easy.

According to the new five-year programme adopted by the top legislature, the National Peoples Congress, (NPC), China has lowered its annual economic growth target to 7 per cent for the 2011-2015 period from the target of 7.5 per cent for the previous five years.

This is despite the fact that it achieved over 11 per cent expansion during past five years.

As for tackling inflation, Wen said, "The government has confidence to anchor inflation expectations."

He said his government has taken three-fold measures to rein in inflation, including efforts to boost production, especially agricultural produce supply, strengthen distribution systems and manage the market with economic and legal means.

Wen said China's inflation rate, which is under 5 per cent now, was due to imported and structural reasons.

The current inflation is in part a global issue, he said. Some countries have pursued a quantitative easing monetary policy, which has caused the fluctuations in exchange rates of major currencies and global commodity prices, Wen added.