China Hesitant to Ease Yuan Control Amid Growth Slowdown

Chinese Finance Minister Lou Jiwei said his country will continue with its intervention in the yuan given the weakness of the economy and abnormal capital inflows.

"The US side has constantly raised the issue about whether intervention is still needed in our foreign exchange policy," Lou said at a press briefing on the China-US Strategic and Economic Dialogue (S&ED).

"But for us, under the current situation, when the economy hasn't recovered fully and when cross-border capital flows are not completely normal, we'll continue."

The US has been demanding that China liberalise its currency policy and end its intervention in the currency market. Earlier in March, China widened its daily currency trading limits, as it signalled a gradual withdrawal from its regular intervention.

The latest comments by the Finance Minister hint that the country would not stop its intervention all of a sudden.

He noted that China has entered a stage of medium-to-high economic growth following years of high growth.

"Therefore the global economic recovery depends on the situation in the United States," Lou said.

He added that the Federal Reserve's orderly exit from its massive bond buyback scheme would cause fluctuations in developing markets including China. The so-called quantitative easing in the US is expected to come to an end later in 2013 in line with the stabilisation of the US economy along with improvements in its job market.

Due to the tapering, China has faced challenges in managing hot money inflows, according to Lou.

Indicating that China is flexible with its growth expectations, Lou said that the country's growth target of about 7.5% "isn't a floor". He added that the country has undertaken steps including faster infrastructure spending and tax cuts to boost economic growth.

In the first quarter, China's economy expanded 7.4% from last year – the slowest growth in six quarters. China is expected to report better growth rates for the second quarter next week.