Bank Official Says China’s Currency Will Remain Stable

Trying to assuage renewed fears that China plans to devalue its currency, the country’s top banking official reiterated Thursday that the yuan will remain stable in 1999.

Dai Xianglong, governor of the People’s Bank of China, pledged to maintain the yuan’s current value and denied rumors that the Communist government has secretly been studying ways to devalue.

“This year we will have a stable renminbi,” which is commonly called the yuan, Dai told reporters at a news conference in Beijing’s Great Hall of the People, where the National People’s Congress is holding its annual session. “As governor of the People’s Bank of China, I have never asked other people to study and I have never studied myself a timetable for the devaluation of the renminbi.”

Dai’s assurance that the yuan will not be devalued follows weeks of renewed speculation over the currency’s stability as the Asian financial crisis drags on. Comments by the central bank governor in January, which suggested that the yuan would remain at about 8.27 to the dollar only as long as China’s balance of payments and exports are healthy, were interpreted by some outsiders as a softening of Beijing’s repeated assertions against devaluation.

On Thursday, Dai sought to put a lid on such speculation. He said that China expects to maintain a favorable balance of payments and will continue to offer some tax rebates for exporters. He also predicted a “remarkable increase” in foreign investment.

But that increase may be hard to come by in the face of China’s slump in demand and Dai’s statement Thursday that foreign creditors may not fully recover their money from a provincial investment company that shut down in October with $4 billion in debts and only $2 billion in assets.

When Guangdong International Trust & Investment Corp., or Gitic, first closed its doors, officials promised that registered foreign creditors would be first in line to get their money back. But Dai said Thursday that the Gitic collapse is now a matter for the courts to handle according to bankruptcy law, which does not guarantee that foreign creditors will be repaid first or fully.

The Gitic failure sent a chill through foreign investors around the world. Similar institutions across China also are believed to be on the verge of collapse.

Dai said bad loans--which have driven some state banks to the point of insolvency--made up only 2.9% of all loans last year. Many economists think the real figure is closer to 25%.

Dai acknowledged that “the trend of nonperforming loans has yet to be checked.” But he said local banks are learning to lend more prudently and that the overhaul of the banking system, including a massive recapitalization plan, is on track. Last year, China infused $33 billion into its ailing state commercial banks through the issue of special treasury bonds.