He spoke after China allowed its currency to rise yesterday
to its highest level against the dollar since a revaluation in
July 2005 a move which traders saw as aimed at defusing
tension over the currency.
Zhou indicated meanwhile to Emerging Markets that
the problem of misaligned exchange rates lies as much with the
depreciation of the dollar as with the exchange rates of the
renminbi and other emerging market currencies.
When challenged on this point, US authorities claim that
they believe in a strong dollar. But the
depreciation of the dollar has led to the effective
appreciation of other currencies, such as Chinas, he
The intensive controversy over the renminbi exchange rate
should recede with time, Zhou told a small briefing yesterday.
We think that this issue may gradually fade out along
with the recovery.
If the US economy gradually recovers and job creation
increases, global imbalances will reduce, he argued.
We have a package of measures to encourage internal
demand in China including investment in rural areas, Zhou
said. This should help the Chinese economy shift more toward
greater reliance on domestic demand and less on exports, he
As the balance of demand changes, Chinas current
account surplus with the US should go down to a
reasonable level, Zhou said. He argued that a broader
approach is needed to imbalance problems than focusing only on
Zhou said that China had already made a
contribution to solving global imbalances, by
keeping its exchange rate stable while other emerging economies
had depreciated their currency after the global currency
crisis, in order to remain competitive.
Asked whether Beijing would consider adopting voluntary
export restraints as a way to reduce its current account
surplus with the US, as Japan did in the 1980s, Zhou said this
idea had been broached by a small group of
economists in China.
If trade friction with the US rose to a level where it
became necessary to take measures to reduce the bilateral
imbalance, voluntary export restrains could be one option, said
Zhou. But the idea is not being seriously studied
in China, he added.
He urged that the exchange rate issue should be seen in a
broad context, bearing in mind that China runs deficits with
some countries and surpluses with others. Demand imbalances are
part of a wider phenomenon requiring policy actions beyond
exchange rate adjustment.
Earlier, Zhou argued during a BBC World debate that China
has already embarked upon exchange rate reform. We are
doing adjustment in a gradualist way, he said.
There are some months when our current account is in
surplus and some when it is deficit, he said. We
will observe the movement of the balance of payments, and then
decide what to do.
The renminbi exchange rate is already supply and
demand related, Zhou argued. But he acknowledged that
China needs to continue with exchange rate reform. [But]
a package of policies is necessary.