China's Wen Says Yuan Nearing Equilibrium, To Pursue Exchange Rate Reforms

Chinese Premier Wen Jiabao said Wednesday that yuan may be nearing an equilibrium level and that the government will continue with its exchange rate reforms, allowing more flexibility in yuan.

The real effective exchange rate of yuan may have reached equilibrium after rising by 30 percent since China launched the exchange rate reform in 2005, Wen said at the end of the annual Parliamentary session.

In the Hong Kong markets, non-deliverable forwards (NDFs) have started to float in both directions since last September. That indicates the real effective exchange rate of yuan may have reached its equilibrium, Wen said.

He said that China will continue to advance exchange rate reform, allowing yuan to float in both directions by a larger margin. China will adhere to the principles of the Doha Round, to enhance free trade and oppose trade protectionism, the Premier said.

He noted that the government will not loosen property controls and that he felt house prices are still "far from a reasonable level."

Wen sought co-operation in addressing trade imbalance between China and the U.S. The U.S. should open its exports to China and ease related restrictions while promoting two-way investment, Xinhua quoted Wen as saying.

He warned of another cultural revolution if the country fails to push through political reforms. Without a successful political reform, it is impossible for China to fully institute economic reform, he said.

At the opening session of the National People's Congress last week, Wen said China will aim for 7.5 percent economic growth this year, after keeping 8 percent target for the past eight years.

Addressing his last annual NPC meeting in nine years as Premier, Wen said "I often feel that much work remains to be done, many things have yet to be properly addressed, and there are many regrets."