BEIJING, July 25 -- China's move to cut its currency's link to the U.S. dollar would do little to narrow huge U.S. trade deficits with China, the head of the Chinese central bank said Saturday.

    The remark came after U.S. commentators said the decision ¡ª which could make Chinese exports more expensive ¡ª might help repair the growing U.S. trade imbalance with China.

    "China's exchange rate reform won't have too much influence on U.S. deficits," Zhou Xiaochuan, governor of the People's Bank of China, said.

    It was his first public comment since the yuan-reform announcement Thursday.

    The U.S. trade deficit with China hit a record US$140 billion last year, according to China¡¯s Ministry of Commerce.

    The central bank pushed up the yuan by 2.1 percent against the U.S. dollar, and said it was adopting a more flexible system that could let it rise further.

    Zhou said China took the step to meet its own economic needs, not because of foreign pressure.

    "It is a requirement of our reform, sustainable development and stability," he said. ¡°It is not a result of discussion and consultation with others.¡±

    The Chinese Government decided the time was right because of progress in Chinese financial reforms and stable growth of the world economy, a central bank spokesman said.

    It was the first time the Chinese Government had given reasons for the timing of its decision.

    The bank spokesman cited ¡°substantive progress in various financial reforms,¡± including efforts to create more market-based interest rates and foreign exchange management.

    The spokesman said Thursday the Chinese Government would switch to a system based on an unspecified basket of foreign currencies.

    The spokesman noted that China began allowing the yuan¡¯s value to fluctuate slightly in 1994, but tightened controls after the 1997 Asian financial crisis.

    ¡°Along with the gradual weakening impact of the Asian financial crisis, in recent years China¡¯s economy has experienced sustained, steady and rapid development, economic structural reform has witnessed continuous deepening (and) new progress has been made in the financial field,¡± the spokesman said.

    ¡°All these have helped create conditions for improving the yuan exchange rate mechanism.¡± Enditem

(Source: Shenzhen Daily/Agencies)