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PBOC Adviser Sees Political ‘Sense’ in Near-Term Move on Yuan

Chinese central bank adviser Li Daokui said near-term change in the nation’s yuan policy would make political “sense” as two days of talks with the U.S. began in Beijing.

“Politically it is worthwhile, it makes sense, for the two sides -- China and the U.S. -- to see some progress in renminbi reform in the near future,” Li said in an interview with Bloomberg Television in the Chinese capital today. The yuan is a denomination of the renminbi. “Broadening the trading band is necessary, as well as a slight increase in the value of the renminbi vis-a-vis the U.S. dollar,” Li said.

President Hu Jintao reaffirmed today that China will move gradually and independently on exchange-rate policy after keeping the yuan pegged to the dollar since July 2008 to help exporters weather the global crisis. Zhang Xiaoqiang, a senior economic planning official, said both nations’ officials agreed caution is needed in ending crisis policies.

Li, who’s a professor at the Beijing-based Tsinghua University with a Harvard University Ph.D. in economics, said that he was giving his personal views. He wasn’t more specific on what the “near future” meant.

The academic said Chinese businesses can withstand an annual gain of about 3 percent in the yuan and it’s “crucially important for our exporters to know that our exchange rate sooner or later will have to appreciate, although it’s gradual.”

Li said a wider trading band and gains against the dollar are “very, very important” for guiding market “expectations.”

Cooling Property Market

While the existing band allows for a daily move of as much as 0.5 percent, the central bank is holding the yuan at about 6.83 per dollar.

Besides weighing when to let the currency appreciate, Chinese officials are trying to cool the property market and contain risks from a record expansion in credit that drove the nation’s economic rebound. They’re concerned a renewed world slump is possible because of a sovereign-debt crisis centered on Greece.

Li, appointed in March as one of three academic advisers to the People’s Bank of China, said today that he “won’t be surprised” if property prices in large Chinese cities fall 20 percent. Authorities should do more to cool the market and additional measures may include local governments investing directly in housing to boost supplies for lower-income buyers, he said.

Property prices rose by a record 12.8 percent in April from a year earlier.

The academic also said today that deposit rates should rise to deter depositors from “rushing” money into asset markets, adding that an increase wouldn’t severely affect banks’ profits. The key one-year deposit rate is 2.25 percent.

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