ADB head says China yuan's falls reflect market value

[YOKOHAMA] The yuan's recent depreciation moves it closer towards its real market value, the head of the Asian Development Bank said, dismissing fears that China may export deflation to its Asian neighbours by flooding goods made cheaper by a weak currency.

ADB President Takehiko Nakao also said that while China's economy may no longer expand at a 10-per cent pace seen in the past, it will continue to grow steadily as it shifts to a consumption-driven economy with a deeper service sector.

"China used to intervene to prevent excessive yuan strengthening, causing some friction with the United States," Mr Nakao, Japan's former top currency diplomat, told a seminar in Yokohama, eastern Japan, on Wednesday. "What's been happening recently is that the yuan has become overvalued ... Depreciation of the yuan is in line with its real market value."

The People's Bank of China (PBOC) has repeatedly intervened to stabilise the yuan since the Aug 11 devaluation - billed as free-market reform - sent shockwaves through global markets and depressed emerging currencies.

Mr Nakao acknowledged that the recent market turmoil partly reflected investors' concern on whether Chinese authorities can guide their economy towards a soft-landing.

But he was sanguine on the outlook, saying that while Chinese stock prices have fallen significantly, they remained above levels seen last summer. "Chinese consumption remains very strong and the country's service sector has great potential to grow," Mr Nakao said. "I'm not too worried about the outlook."

Worries about a sharp slowdown in China's economy have jolted global financial markets and heightened concern among Asian policymakers on the outlook for the region's economies.

Mr Nakao said the slowdown in China may weigh on countries that rely heavily on commodity exports to the world's second-biggest economy such as Indonesia. "But Asian countries have the ability to keep expanding on their own," he said. "I don't think (China's slowdown) will deal a severe blow to Asia's economic development."

REUTERS