Peking stands firm behind HK dollar peg

China's central banker yesterday insisted Peking would not devalue the mainland's currency and was standing firm behind Hong Kong's defence of its dollar peg.

The blunt public pronouncements were aimed both at international financiers and opinion at home, where the Asian financial turmoil has caused a slide in the black market value of the renminbi. Dai Xianglong, governor of the People's Bank of China, made the most forthright pledge yet that the Chinese government would not devalue its currency in response to the Asian financial meltdown. A renminbi devaluation was "out of the question. "We don't have a reason to devalue, nor are we willing to devalue", he said.

The commitment comes ahead of today's arrival in Peking of Michel Camdessus, managing director of the International Monetary Fund, whose bail-out programmes for other Asian countries would be undermined by any Chinese depreciation. Repeated promises by Peking have failed to quell fears that China may decide to devalue its currency because of rising competition for its exports from south-east Asian countries. Mr Dai said that only 15 per cent of China's exports were vulnerable to competition from south-east Asian countries.

Rumours of a renminbi devaluation puts yet more pressure on the Hong Kong dollar peg to the US currency, which Peking is committed to maintaining. Mr Dai stressed that China's economy was robust. Economic growth will slow this year, he confirmed, but he was confident it would still reach 8 per cent, compared with 8.8 per cent in 1997. And the cause of the cooling was a slowdown in township and village enterprises, previously one of the engines of China's economic growth. The central banker promised "very drastic measures" to restructure China's state banks, confirming that up to 25 per cent of domestic loans were non-performing, of which more than 5 per cent were non-recoverable.

Meanwhile, in Hong Kong the Hang Seng Index rose almost 4 per cent as fears of a default at Sino Group, the property developer, receded. Concern over the property giants was exacerbated by a decision by Moody's, the credit ratings agency, to downgrade British-controlled Swire Group, and Wharf. The pair saw their share price rise, probably reflecting the recent criticism of credit agencies for failing to predict the crisis.