The People's Bank of China released a statement Monday following the meeting of its monetary policy committee: China should improve its managed float foreign exchange system and promote the market's role in setting the yuan exchange rate. The bank pledged to continue to take steps to keep investment and credit growth in check, while continuing with its "stable and prudent" monetary policy to control the country's excessive market liquidity. China has been under global fire to move faster in giving its forex system more flexibility and reduce the unfair competitiveness its exporters enjoy due to an undervalued yuan. Since revaluing the yuan by 2.1% and decoupling it from the dollar in July 2005, the yuan has appreciated another 3.7%, the pace having picked up in recent months, but many critics say it remains seriously undervalued. The statement didn't detail how the central bank will 'improve' its foreign exchange system. The country is trying to ease its enlarging trade surplus, which has contributed to the market's liquidity, and instead focus on actively boosting domestic consumption. WSJ quotes Stephen Green of Standard Chartered Bank in Shanghai as saying the statement didn't contain any news: "It sounds like business as usual." But he did say he expects Beijing will allow the yuan to appreciate faster in 2007, without elaborating.
• Sources: Bank of China website, WSJ, Taipei Times, Reuters.uk
• Related commentary: The Yuan Dilemma; Stocks, Not Economy Overheating?, China : What to Do with Foreign Reserves At $1 Trillion and Counting?, Bernanke Ratchets Up Pressure On China Over Exchange Rate, Invest in China : Rapid GDP Growth Rates Indicate Prosperous Future, Full Seeking Alpha Coverage of China
• Potentially impacted stocks and ETFs: China Fund (NYSE:CHN), Greater China Fund (NYSE:GCH), iShares FTSE/Xinhua China 25 Index Fund (NYSEARCA:FXI), JF China Region Fund (NYSE:JFC), PowerShares Golden Dragon Halter USX China (NYSEARCA:PGJ)
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