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Last Updated: Monday, 8 March, 2004, 06:23 GMT
China vows to keep currency peg
100-yuan notes
Hopes in the US that China could make its currency stronger are doomed to disappointment, economic leaders warn.

The yuan is fixed at 8.28 to the US dollar, a low rate which many in the US say costs US jobs.

But despite the US's feverish diplomacy and loud complaints, the peg is here to stay for "a long time to come", China's top foreign exchange official said.

The announcement follows a shift in economic policy to slow down growth and focus on helping the rural poor.

The low level of the yuan is widely believed to have contributed to a blistering 9.1% growth rate last year - a rate which the government now fears is overheating and imbalancing the economy.

A new target of 7% for 2004 was set on Friday by Prime Minister Wen Jiabao, in the hope of avoiding a "boom and bust" cycle.

'Enormous price'

In comments quoted across the Chinese media, State Administration of Foreign Exchange head Guo Shuqing was scathing about the accusations that China's trade is getting an unfair advantage from the yuan.

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"Our study shows that the impact of the exchange rate on the economy and employment has been over-exaggerated," he said.

"China's managed floating exchange rate system conforms to the realities of China, and it will continue for a long time to come."

It was China's low wages, not the cheapness of its currency, that gave it a head-start, he insisted.

He also warned companies betting on an early shift and buying that they would suffer for it.

"Anyone betting on a yuan appreaciation is likely to pay an enormous price," he said.

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