China insists yuan will not devalue

CHINA'S CENTRAL banker yesterday gave his strongest pledge yet that the mainland currency would not be devalued.

But Dai Xianglong, governor of the People's Bank of China, offered no cheer to foreign bankers who are smarting after being told they will not receive priority treatment following the collapse of Guangdong International and Investment Corporation (GITIC), China's biggest ever bankruptcy.

"[President] Jiang Zemin and prime minister Zhu Rongji have both said that the renminbi will not devalue. And as the person in charge, I reassure you that the renminbi will not devalue," said Mr Dai at a rare press conference. The renminbi currency is also known as the yuan.

Asian stock markets have regularly tumbled over the past year on fears that China was about to devalue its currency and spark a wave of competitive devaluations in the crisis-ridden region.

"There is no reason for the renminbi to devalue. The current foreign exchange reserves of China of US$145bn exceed one year's imports for China, and the costs of exports are quite stable," Mr Dai said.

China's currency is convertible only on the current account, for trade in goods and services, and not on the capital account, so it has been insulated from speculative trading. Nevertheless, regional markets have been extremely jittery about the yuan since the Brazilian real was floated this month.

Pressed on what factors might prompt a devaluation, Mr Dai said: "If you insist, I will say that the renminbi will only devalue when there is a great imbalance in the balance of payments of China, and there is a great increase in the cost of exports. But I do not think these conditions exist this year."

In 1998, China struck a record trade surplus of US$43.59bn, while the retail price index fell 2.6 per cent. Mr Dai reiterated forecasts that China's GDP growth could reach 7 per cent this year, compared with 7.8 per cent in 1998, and announced that foreign banks would be allowed to extend their restricted operations from the current 23 cities to all major centres.

But this upbeat view will do little to ease worries about insolvent state banks or reduce the shock from the GITIC failure.

GITIC, which is wholly-owned by the provincial government of Guangdong, collapsed in October, but it was only this month that it was revealed to have massive debts of US$4.35bn against US$2.58bn assets. Foreign creditors reportedly have around US$1.2bn at stake.

These investment corporations mushroomed in the early 1990s as a vehicle for state units to raise foreign capital.

GITIC's foreign lenders had widely believed that their registered loans were implicitly guaranteed by the Guangdong government, but have now been informed they must take their place in the queue as the Guangdong Supreme Court handles the bankruptcy.

Mr Dai seemed to dismiss the notion that there had been any guarantees for the "legitimate registered" foreign debt. "The registration of foreign debt means that those capital inflows were allowed or permitted by the Chinese authority... It does not mean a guarantee from the Chinese authority of the registered foreign debt," he said.

Creditors would be protected "in accordance with the law", he said. "If all the registered legitimate debts of GITIC were repaid, most of the domestic creditors, including foreign financial institutions, joint ventures, and state-owned enterprises, would not be repaid at all," said Mr Dai.

The problem of the so-called "ITICS" is widespread in China, though not on the same scale as GITIC. After peaking at about 1,000, Mr Dai said there were now 239 other ITICS, which between them had foreign borrowings of a further US$8.1bn.

Start your day with The Independent, sign up for daily news emails
News
Sir David Attenborough
people
Life and Style
Young girl and bowl of cereal
food + drink
News
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
PROMOTED VIDEO
Sport
football
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
i100
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
tv
News
i100
Environment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
environment
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness