By Keith Bradsher
The New York Times
Monday, March 7, 2005

http://www.nytimes.com/2005/03/07/business/worldbusiness/07yuan.html
     
HONG KONG, March 6 -- The Chinese official in charge of his
country's huge foreign currency reserves said over the weekend that
China had no plans to sell dollars, and also ruled out any "large-
scale" appreciation of China's currency against the dollar.

The series of unusually blunt comments by Guo Shuqing, director of
the State Administration of Foreign Exchange and a vice chairman of
the central bank, may reassure currency traders that China will not
push down the value of the dollar by dumping its holdings in favor
of currencies that have been stronger in the last year or two, like the euro. With $609.9 billion in foreign exchange holdings at the
end of last year, China has the world's second-largest reserves,
after Japan.

But Mr. Guo's opposition to any significant appreciation of the
Chinese currency, the yuan, is also a setback to efforts by the
United States, the European Union, and Japan to blunt China's
growing share of global trade by urging that Chinese officials let
the yuan's value rise.

Mr. Guo appeared to be trying to address an undercurrent of popular
dismay in China over the rapid accumulation of dollar-denominated
assets even as the dollar has weakened. Chinese media have published numerous articles in recent months asking if the country has lost money by investing so heavily in dollars.

The official New China News Agency on Sunday carried a rare defense
of Chinese currency policies by Mr. Guo. "We will not adjust the
structure of our foreign exchange reserves according to short-term
fluctuations," he was quoted as saying Saturday on the sidelines of
a meeting of the Chinese People's Political Consultative Conference,
an advisory group. "If we sell U.S. dollars now when it is tumbling,
it means we lose money. If we do sell them, we have to buy other
currencies such as the euro. But what if the euro drops?"

Liang Hong, a Goldman Sachs economist here, said Mr. Guo might have felt compelled to speak publicly because the National People's Congress, the Communist Party-controlled Parliament, has convened for its annual session. "Each time at this time of year," she said, "they have to respond to these questions, probably raised by
N.P.C. members, so they have to defend that."

China's foreign reserves have tripled since 2001, but oil prices
have more than doubled since then, so the buying power of the
reserves has not risen as fast, Ms. Liang noted.

In separate comments to domestic and foreign news media on Saturday
at the conference, Mr. Guo ruled out allowing the yuan to float
freely and said that no large-scale appreciation would be permitted.
But like other Chinese officials over the last four years, he hinted
at the possibility that Beijing would at some point tolerate greater
flexibility in the exchange rate, now effectively fixed at 8.28 to
the dollar. "As for how to determine the range, it depends on actual
circumstances," he said, according to Reuters. "We are making
various preparations."